Economic Analysis
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Course Introduction
Economic Analysis explores the fundamental concepts and tools used to examine how individuals, businesses, and governments allocate scarce resources to satisfy competing needs. The course delves into both microeconomic and macroeconomic principles, covering topics such as supply and demand, market structures, consumer behavior, production costs, and economic efficiency. Students will learn to apply analytical methods to real-world economic problems, interpret economic data, and evaluate policy impacts, providing a solid foundation for further studies in economics, business, and public policy.
Recommended Textbook
Microeconomics 1st Canadian Edition by B.
Douglas Bernheim
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) In most countries,decisions that affect medical expenditures are
A) Centralized
B) Decentralized
C) Determined by government policy
D) Both centralized and decentralized
Answer: D
Q2) The rate at which someone can swap money for a good is called the _____ of the good.
A) Price
B) Opportunity cost
C) Total cost
D) Rate of substitution
Answer: A
Q3) Which of the following is NOT a reason that trade can benefit everyone?
A) Someone who owns a good of relatively little value can trade it for something they value more
B) Trade frees people from the need to produce everything themselves
C) Trade allows people to specialize in whatever they do best
D) Trade eliminates the problem of scarcity
Answer: D
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Chapter 2: Supply and Demand3
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Q1) Supply curves tend to be _____ in the ______.
A) Flatter; long run
B) Steeper; long run
C) Negatively-sloped in the short run
D) Negatively-sloped in the long run
Answer: A
Q2) Suppose there is a decrease in both the demand for and supply of a good.What happens to equilibrium price and quantity?
A) Equilibrium quantity increases, but the effect on equilibrium price is ambiguous
B) Equilibrium quantity decreases, but the effect on equilibrium price is ambiguous
C) Equilibrium price increases, but the effect on equilibrium quantity is ambiguous
D) Equilibrium price decreases, but the effect on equilibrium quantity is ambiguous
Answer: B
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Chapter 3: Balancing Benefits and Costs
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Q1) Based on the Figure 3.5,what is the optimal choice for hours spent on this activity?
A) 0
B) 8
C) There is no optimal choice
D) There is not enough information to determine the optimal choice
Answer: A
Q2) Refer to Figure 3.1.Which graph best represents the total cost of an activity?
A) A
B) B
C) C
D) D
Answer: D
Q3) According to the No Marginal Improvement principle,when searching for best solutions,we can limit our attention to activity levels at which
A) MB = MC or it is impossible to both increase and decrease the activity level
B) MB = MC and it is impossible to both increase and decrease the activity level
C) MB = MC and it is possible to both increase and decrease the activity level
D) MB = MC and it is only possible to increase the activity level
Answer: A
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Chapter 4: Principles and Preferences
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Q1) Consider two activities: Attending economics class and reading an economics textbook.Zack thinks he can learn economics by either attending class or reading the textbook.Zoe knows she learns best by both attending class and reading the textbook.Use indifference curves to illustrate each person's preferences for attending class and reading the text.
Q2) As we move down and to the right along an indifference curve,the marginal rate of substitution
A) Increases
B) Decreases
C) Remains constant
D) Increases, then decreases
Q3) Which of the following correctly expresses the relationship between the marginal utilities of two goods and marginal rate of substitution between the goods?
A) MRS<sub>XY</sub> = (MU<sub>Y</sub>/MU<sub>X</sub>)
B) MRS<sub>XY</sub> = (MU<sub>X</sub>/MU<sub>Y</sub>)
C) MRS<sub>XY</sub> = (U/ X)
D) MRS<sub>XY</sub> = (U/ Y)
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Chapter 5: Constraints, Choices, and Demand
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Q1) In Canada provincial regulatory boards set tiered prices for electricity.These tiered prices lead to budget lines that are
A) Upward-sloping
B) Kinked
C) Horizontal at a specific level of electricity consumption
D) Vertical at a specific level of electricity consumption
Q2) A curve that describes the relationship between income and the amount of a good consumed (holding the consumer's preferences and all other prices fixed)is called
A) A price-consumption curve
B) The Engel curve
C) An income-consumption curve
D) A budget line
Q3) Refer to Figure 5.6.Which diagram shows a decrease in income with bread being normal and soup being inferior?
A) A
B) B
C) C
D) D
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Chapter 6: Rom Demand to Welfare
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Q1) Refer to Figure 6.4.If the price is $1,000,then expenditures are represented by the area
A) c + d
B) c
C) b + c
D) a + b + c
Q2) Refer to Figure 6.5.The substitution effect is shown by the movement
A) From point A to point B
B) From point A to point C
C) From point B to point C
D) From point B to point A
Q3) Refer to Figure 6.3.Suppose the price of pizza is $9.75.Then consumer surplus is ______.
A) $3.75
B) $3.50
C) $29.25
D) $33.00
Q4) Define consumer surplus.Using a graph,explain the change in consumer surplus that would result from a decrease in the price of a gasoline.
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Chapter 7: Technology and Production
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Q1) Refer to Figure 7.3.The marginal rate of technical substitution for labour with capital at 120 workers is represented by the slope
A) Of line ac
B) Of line ed
C) Of line ab times negative one
D) Of line ed times negative one
Q2) For the Cobb-Douglas production function F(L,K)= AL<sup>a</sup>K<sup>b</sup>,a factor-neutral technical change would be represented by
A) An increase in the value of a
B) An increase in the value of b
C) Values of a and b for which a + b > 1
D) An increase in the value of A
Q3) Refer to Figure 7.5.Which diagram represents isoquants for inputs that are perfect substitutes?
A) A
B) B
C) C
D) D
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Chapter 8: Cost
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Q1) A ______ cost is ______ if the firm incurs the cost even if it produces no output.
A) Fixed; sunk
B) Fixed; explicit
C) Variable; sunk
D) Fixed; avoidable
Q2) A firm's ______ connects all the input combinations with the same cost.
A) Cost function
B) Isoquant
C) Budget constraint
D) Isocost line
Q3) Refer to Table 8.1.Assume the wage rate is $10 and the firm has $1,000 in unavoidable fixed cost.What is the average cost of producing 65 units of output?
A) $40
B) $15.38
C) $0.50
D) $16
Q4) Using a graph,explain the relationship between average cost and marginal cost.
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Chapter 9: Rofit Maximization
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Q1) Refer to Figure 9.1.If Dan were to shut down his production of bats and only produce gloves,what would be his profit-maximizing sales quantity of gloves?
A) 20
B) 25
C) 30
D) 50
Q2) Refer to Figure 9.5.Which area represents producer surplus?
A) ABCDE
B) EDGF
C) EDCHF
D) ABHF
Q3) Consider a price-taking firm with a minimum efficient scale that is greater than zero.Using a graph,explain how the firm's supply curve is derived.What happens to the firm's supply curve if the cost of producing each unit decreases by $10? Show this in a graph.
Q4) Graphically illustrate the quantity rule and the shut down rule for a price-taking firm.
Q5) Using a graph,explain why the law of supply holds for a competitive firm.
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Chapter 10: Choices Involving Time
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Q1) Refer to Figure 10.1.Which line represents saving?
A) b
B) h
C) f + i
D) d
Q2) Assume the interest rate is 5%.What is the present discounted value of a $1,000 bond that pays a $50 coupon each year for 10 years?
A) $989.91
B) $999.91
C) $1,000.00
D) $1,009.99
Q3) Refer to Scenario 10.1.What is the net present value of the decision to go to invest in college?
A) $10,742.71
B) $11,141.18
C) $11,655.84
D) $12,088.18
Q4) What would the interest rate need to be in order to earn $100 on an investment of $1,000 over two years? Assume interest compounds annually.
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Chapter 11: Choices Involving Risk
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Q1) Explain why a risk averse individual will purchase full insure if a policy is actually fair,but only partially insure or not insure at all,if it is not.
Q2) Refer to Figure b.Suppose consumers choose to consume food in two different states,sunny weather,F<sub>S</sub> and during a hurricane,F<sub>H</sub>.As the consumer moves from point A to B along the indifference curve,the variability of consumption
A) Decreases
B) Increases
C) Remains constant
D) Increases for one good, but decreases for the other
Q3) If two investments are perfectly positively correlated
A) There is no benefit from diversification
B) Bets are perfectly hedged and risks are canceled out
C) Diversification reduces risk without changing the expected payoff
D) Diversification reduces both risk and the expected payoff
Q4) Brandon's risk premium given the information in problem 25 is
A) 250
B) 325
C) 17.5
D) 18.75
Page 13
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Chapter 12: Choices Involving Strategy
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Q1) Cooperation
A) Is sustained by the threat of punishment for bad behavior
B) Is sustained by the promise of reward for good behavior
C) Will fail to be established if threats/promises are not credible
D) All of these
Q2) Refer to Figure d.In the game described in problem 21,for Travis,north is
A) The best response
B) The dominant strategy
C) Is weakly dominated
D) Dominated
Q3) Refer to Figures b and c.Given the rules of the game described in problem 17,what is Kate's dominant strategy?
A) Squeal
B) Deny
C) She does not have one
D) It depends upon what Alice does
Q4) Use the concepts of reputation and asymmetric information to explain why some faculty members become less productive after gaining tenure.
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Page 14
Chapter 13: Behavioral Economics
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Q1) In the ultimatum game
A) One player (the proposal) offers to give the second player (the recipient) some share of a fixed prize; the recipient then decides whether to accept or reject the proposal
B) Is a single-stage game
C) One player (the proposal) gives the second player (the recipient) some share of a fixed prize; the recipient must keep the amount given
D) Was proposed by John Nash
Q2) A dieter who prefers to eat small portions at his next meal,but chooses a large portion at mealtime when it arrives is
A) Dynamically consistent
B) Dynamically inconsistent
C) Exhibiting self-control
D) Exhibiting a past bias
Q3) Anchoring occurs when
A) Someone's choices are linked to prominent but patently irrelevant information
B) Someone's choices are linked to prominent and relevant information
C) Someone's choices are made in the absence of relevant information
D) Someone's choices are based solely upon proven and relevant information
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Chapter 14: Equilibrium and Efficiency
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Q1) Market demand for a product
A) Is the demand of an individual consumer
B) Graphically is the horizontal sum of the individual demand curves
C) Graphically is the vertical sum of the individual demand curves
D) Graphically is the horizontal sum of the individual supply curves
Q2) With free entry
A) There is a known and limited number of potential suppliers that can produce a good in the long run
B) There is an unlimited number of firms that can produce a good in the long run
C) The long run market demand curve is horizontal at the market price
D) Firms will always enter the market
Q3) Aggregate surplus
A) Is maximized under perfect competition
B) Is minimized under perfect competition
C) Is the sum of consumer and producer surpluses
D) A and C
Q4) Suppose the wiz-pop market is in long-run equilibrium.Suddenly,fixed costs decrease,although variable costs remain unchanged.Discuss the short-run and long-run changes in market equilibrium.
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Chapter 15: Market Intervention
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Q1) With a price floor
A) Producer surplus will increase if profits increase
B) Producer surplus will increase is profits fall
C) Producer surplus will decrease if profits increase
D) Producer surplus always decreases
Q2) More of a tax is borne by firms
A) The more elastic is demand and the less elastic is supply
B) The less elastic is demand and the less elastic is supply
C) The more elastic is demand and the more elastic is supply
D) The less elastic is demand and the more elastic is supply
Q3) The incidence of a tax
A) Indicates how much of the tax burden is borne by suppliers
B) Indicates how much of the tax burden is borne by consumers
C) Indicates how much of the tax burden is borne by various market participants
D) Depends upon the shape of the supply curve only
Q4) A voluntary production reduction program
A) Offers firms incentives to reduce their production voluntarily
B) Forces firms to reduce their production
C) Offers firms incentives to increase their production voluntarily
D) Forces firms to increase their production
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Chapter 16: General Equilibrium, Efficiency, and Equity
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Q1) General equilibrium analysis
A) Concerns competitive equilibrium only in the factor markets
B) Concerns competitive equilibrium only in the product markets
C) Concerns competitive equilibrium in a single market, considered in isolation
D) Is the study of competitive equilibrium in many markets at the same time
Q2) The Edgeworth box
A) Is a diagram that shows two consumers' opportunities and choices in a single figure
B) Can be used to illustrate equilibrium in a simple exchange economy
C) Was first introduced by Francis Ysidro Edgeworth
D) All of these
Q3) General equilibrium analysis
A) Is the study of competitive equilibrium in one market
B) Illustrates the independency among markets
C) Concerns competitive equilibrium in a single market, considered in isolation
D) Is the study of competitive equilibrium in many markets
Q4) Compare and contrast the principles of utilitarianism,Rawlsianism and egalitarianism.Discuss the assumptions of each and the difficulties societies might face while trying to conform to them.
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Chapter 17: Monopoly
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Q1) A firm's price-cost margin
A) Is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price
B) Is the amount by which its marginal cost exceeds its average cost
C) Is the amount by which its average cost exceeds its marginal cost
D) Is the value of its profit
Q2) When a monopolist maximizes its profit by selling a positive amount
A) Its marginal revenue must equal its marginal cost at that quantity
B) Its marginal revenue must exceed its marginal cost at that quantity
C) Its marginal revenue must be less than its marginal cost at that quantity
D) Its marginal revenue must be equal to zero
Q3) A monopolist
A) Faces a downward sloping demand curve and by lowering the quantity he sells, he can charge more
B) Faces a horizontal demand curve and by raising price, he will lose all of his consumers
C) Faces an upward sloping supply curve and by lowering the quantity he buys, he can pay less
D) Faces a downward sloping supply curve and by increasing the quantity he buys, he can pay less
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Chapter 18: Pricing Policies
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Q1) Bundling
A) Is the practice of selling a single product in bulk at a reduced per unit price
B) Is the practice of selling several products together as a package
C) Is the practice of selling the same good to different types of consumers at different prices
D) Is the practice of selling different goods to different types of consumers at different prices
Q2) A telephone company that charges both a monthly fee plus a price per minute used are employing
A) Quality dependent pricing
B) Ordinary price discrimination
C) A two-part tariff
D) Quantity dependent pricing
Q3) Discuss the differences between perfect and imperfect price discrimination and the benefits of each to a monopolist.
Q4) Explain bundling and mixed bundling and the benefits to a multi product monopolist of such packaging schemes.
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Chapter 19: Oligopoly
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Q1) In a market for homogenous goods
A) Firms sell identical products
B) Firms sell different products
C) Firms sell identical products for identical prices
D) Firms sell different goods for identical prices
Q2) A strategic precommitment occurs when a firm
A) Commits to some actions before rivals take theirs, with the aim of increasing its future competitive profit
B) Commits to some actions after rivals take theirs, with the aim of increasing its future competitive profit
C) Commits to some actions before rivals take theirs purely by accident
D) Commits to some actions after rivals take theirs because there are no other options
Q3) Compare and contrast the Bertrand and Cournot models of oligopoly.Your discussion should include assumptions made,goals of the firms and the resulting outcomes.
Q4) Define the Bertrand model and its assumptions.Explain why the model predicts the perfectly competitive outcome despite the number of sellers.Discuss the limitations of the model.
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Chapter 20: Externalities and Public Goods
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Q1) Pigouvian taxation
A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principles requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality
Q2) Common property resources include
A) Movies
B) Fast food
C) Oceans
D) Professional baseball games
Q3) The economist who won the Nobel Prize in Economics for his path-breaking analysis of the ways in which property rights,transaction costs and institutions affect the allocation of economic resources is
A) John Nash
B) Arthur Cecil Pigou
C) Ronald Coase
D) Theodore Groves
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