Economics for Social Sciences
Exam Solutions
Course Introduction
Economics for Social Sciences provides students with a foundational understanding of economic principles and how they apply to societal issues and human behavior. The course explores key microeconomic and macroeconomic concepts such as supply and demand, market structures, economic efficiency, and government intervention, while emphasizing their relevance to social phenomena. Through real-world examples and case studies, students will analyze how economics interacts with politics, culture, education, inequality, and public policy, equipping them with analytical tools to critically assess economic arguments and their implications for society.
Recommended Textbook
Microeconomics 12th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) When y changes, x stays the same. The line depicting this relationship would be
A) vertical.
B) horizontal.
C) linear with a negative slope.
D) linear with a positive slope.
Answer: A
Q2) Below is a student's answer to the question "What is microeconomics?" If you were the instructor, how would you correct the student's answer?
"Microeconomics is the study of how government influences the choices made by individuals and businesses and of the performance of the whole national economy."
Answer: The answer is partially correct. Microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of the government. But the performance of the national economy is the subject of macroeconomics, not microeconomics.
Q3) What does the slope of the line shown in the above figure equal?
Answer: The slope equals the change in variable on the y-axis divided by the change in the variable on the x-axis, or (30 - 60)/(25 - 15) = -3.0.
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Page 3
Chapter 2: The Economic Problem
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Sample Questions
Q1) The table above lists six points on the production possibilities frontier for grain and cars. What is the opportunity cost of producing the 26th car?
A) 2 tons of grain per car
B) 4 tons of grain per car
C) 0.25 tons of grain per car
D) 0.5 tons of grain per car
Answer: D
Q2) In the production possibilities frontier depicted in the figure above, which of the following combinations of hats and bananas is inefficient?
A) 4 million pounds of bananas and 4 million hats
B) 2 million pounds of bananas and 5 million hats
C) 0 pounds of bananas and 6 million hats
D) 1 million pounds of bananas and 3 million hats
Answer: D
Q3) If a country operates on its PPF, it achieves production efficiency.
A)True
B)False
Answer: True
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Chapter 3: Demand and Supply
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Sample Questions
Q1) If more people buy hybrid cars that have high gas mileage, the equilibrium price of gasoline will ________ and the equilibrium quantity will ________.
A) rise; increase
B) rise; decrease C) fall; increase D) fall; decrease
Answer: D
Q2) The figure above shows the market for airline tickets. If airline tickets are a normal good, then the recession in 2008 that caused people's incomes to decrease lead to a shift from
A) D<sub>0</sub> to D<sub>1</sub>.
B) D<sub>1</sub> to D<sub>0</sub>.
C) S<sub>0</sub> to S<sub>1</sub>.
D) S<sub>1</sub> to S<sub>0</sub>.
Answer: A
Q3) What are substitutes in production?
Answer: Goods are substitutes in production when one good can be produced in place of the other, that is, when the goods are produced using the same resources.
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Chapter 4: Elasticity
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Sample Questions
Q1) The price elasticity of demand is 5.0 if a 10 percent increase in the price results in a ________ decrease in the quantity demanded.
A) 2 percent
B) 5 percent
C) 10 percent
D) 50 percent
Q2) If the demand for a good is elastic, when the price increases, the A) demand will decrease.
B) quantity demanded will increase.
C) quantity demanded will decrease by a smaller percentage than the price increased.
D) quantity demanded will decrease by a greater percentage than the price increased.
Q3) If the income elasticity of demand for corn is 0.5, then as income increases
A) the demand for corn will increase.
B) the demand for corn will decrease.
C) corn will prove to be an inferior good.
D) the supply curve of corn will shift leftward.
Q4) What are the three cases for the price elasticity of demand? Briefly define each.
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Chapter 5: Efficiency and Equity
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Sample Questions
Q1) A modified version of utilitarianism proposed by John Rawls states that
A) the distribution of the economic pie is fair if the rules are fair.
B) the distribution of the economic pie is fair if it achieves the greatest happiness for the greatest number of people.
C) the fair distribution of the economic pie is the one that makes the poorest person as well off as possible.
D) goods may be transferred from one person to another only by voluntary exchange.
Q2) At the quantity of 200 bushels of apples, the marginal social benefit of a bushel of apples is $100 and the marginal social cost is $50. To produce the efficient quantity of apples
A) more apples should be produced.
B) fewer apples should be produced.
C) there should be no change in the amount of apples produced.
D) More information on the willingness of consumers to purchase apples is needed to determine the efficient level of apples.
Q3) What approach to fairness argues in favor of government policies that redistribute income so that there is more equality of income?
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Page 7
Chapter 6: Government Actions in Markets
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Sample Questions
Q1) The above figure shows the market for neckties. Based on the graph, how much tax per necktie has been imposed by the government?
A) $1.25 per tie
B) $1.00 per tie
C) $0.75 per tie
D) More information is needed to determine the tax that the government has imposed.
Q2) Why would an increase in the minimum wage to $15 per hour lead to more unemployment for teenage and low-skilled workers?
Q3) The government of Healthyland imposes a tax on sellers of salt. The tax is $0.10 per pound. With no tax, the price of salt is $0.40 per pound. The demand for salt is perfectly inelastic and the elasticity of supply is 1.5. With the tax, the price of salt paid by buyers in Healthyland is
A) $0.40 per pound.
B) $0.45 per pound.
C) $0.35 per pound.
D) $0.50 per pound.
Q4) In a diagram, illustrate the case of a price ceiling that affects the market's price and quantity.
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Page 8
Chapter 7: Global Markets in Action
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Sample Questions
Q1) The (false) idea that an industry should be protected because of learning-by-doing until it is large enough to compete successfully in world markets is the ________ argument for protection.
A) cheap foreign labor
B) infant industry
C) dumping
D) comparative advantage
Q2) During the first 6 months of 2008, the United States imported from Africa, Asia, and Latin America more than 1.6 billion pounds of coffee and did not export any coffee. Based on this, we know definitively that
A) Africa, Asia, and Latin America have comparative advantage in coffee production.
B) the United States has absolute advantage in coffee production.
C) Africa, Asia, and Latin America have absolute advantage in coffee production.
D) the United States has comparative advantage in coffee production.
Q3) Over the past 80 years, the United States has reduced its average tariff rate so today it is less than 5 percent.
A)True
B)False
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Chapter 8: Utility and Demand
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Sample Questions
Q1) Gene plays another hour of computer games rather than study for the hour even though he knows that the next day, when he takes his test, he will regret his decision. Gene is showing ________.
A) the endowment effect
B) bounded rationality
C) bounded self-interest
D) bounded will power
Q2) A behavioral economist will explain Tom's donation to charity by saying that Tom is displaying ________.
A) the endowment effect
B) bounded rationality
C) bounded self-interest
D) bounded will power
Q3) Sally derives utility from consuming apples and tacos as shown in the table above. Apples cost $1 each and tacos cost $2 each. If Sally's income is $9, she will consume
A) 5 apples and 2 tacos.
B) 3 apples and 3 tacos.
C) 1 apple and 4 tacos.
D) no apples and 4 1/2 tacos.
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Page 10
Chapter 9: Possibilities, Preferences, and Choices
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Sample Questions
Q1) Hilda buys only cauliflower, Q<sub>c</sub>, and geraniums, Q<sub>g</sub>. The equation for Hilda's initial budget line is $40 = $2 × Q<sub>c</sub> + $4 × Q<sub>g</sub>. If Hilda's income increases by $20, the price of cauliflower decreases by $1, and the price of geraniums increases by $1, the equation of her new budget line is
A) $60 = $1 × Q<sub>c</sub> + $5 × Q<sub>g</sub>
B) $60 + $1 × Q<sub>c</sub> = $5 × Q<sub>g</sub>
C) $0 = $60 + $1 × Q<sub>c</sub> + $5 × Q<sub>g</sub>
D) $60 = $5 × Q<sub>c</sub> - $1 × Q<sub>g</sub>
Q2) The concept of diminishing marginal rate of substitution indicates that
A) as the consumption of good X increases, individuals are willing to give up an increasing amount of good Y in order to obtain one more unit of good X.
B) as the consumption of good X increases, individuals are willing to give up a decreasing amount of good Y in order to obtain one more unit of good X.
C) along an indifference curve, a consumer prefers the consumption combinations moving to the northwest along the curve.
D) None of the above answers is correct.
Q3) What is the substitution effect?
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Chapter 10: Organizing Production
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Sample Questions
Q1) The return that an entrepreneur can expect to earn, on average, is called A) profit.
B) normal profit.
C) economic profit.
D) accounting profit.
Q2) A normal profit for a self-employed entrepreneur is I. an opportunity cost. II) part of the implicit rental rate of the funds invested in the business.
A) only I
B) only II
C) both I and II
D) neither I nor II
Q3) Which of the following is a CORRECT statement?
A) Economic efficiency definitely occurs when a firm cannot increase production without using more resources.
B) Technological efficiency depends on the costs of resources while economic efficiency depends on only production methods.
C) Technological efficiency depends only on production methods, while economic efficiency depends on the costs of resources.
D) all of the above
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Page 12
Chapter 11: Output and Costs
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Sample Questions
Q1) The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the average variable cost of producing 1,000 frijoles?
A) $1
B) $2
C) $3
D) More information is needed to determine the answer.
Q2) The long run is a period of time in which
A) all factors of production are variable.
B) all factors of production are fixed.
C) some but not all factors of production are fixed.
D) some but not all factors of production are variable.
Q3) What is the difference between the short run and the long run?
Q4) Using the data in the above table, which worker at Jefferson's Cleaners has the highest marginal product?
A) the second
B) the third
C) the fourth
D) the fifth
Q5) Which average cost curves are U-shaped?
Page 13
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Chapter 12: Perfect Competition
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Sample Questions
Q1) If the price of its product just equals the average variable cost of production for a competitive firm,
A) total revenue equals total fixed cost and the firm's loss equals total variable cost.
B) total revenue equals total variable cost and the firm's loss equals total fixed cost.
C) total fixed cost is zero.
D) total variable cost equals total fixed cost.
Q2) As long as it does not shut down, a profit-maximizing perfectly competitive firm will
A) always earn an economic profit.
B) produce so that marginal revenue equals marginal cost.
C) produce so that price equals average cost.
D) never set its price equal to its marginal revenue.
Q3) Perfect competition implies that
A) there are many firms in the market.
B) all firms are price takers.
C) all firms are producing the same identical product.
D) All of the above answers are correct.
Q4) What role does economic profit play in a competitive market?
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Chapter 13: Monopoly
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Sample Questions
Q1) If a natural monopoly is allowed to set its price above its average total cost, then
A) the company makes an economic profit.
B) the company incurs an economic loss.
C) competitors will enter the market.
D) the company will produce more than the efficient amount of output.
Q2) The marginal revenue curve for a single-price monopoly
A) lies below its demand curve.
B) coincides with its demand curve.
C) lies above its demand curve.
D) is horizontal.
Q3) Using the demand schedule in the above table, the marginal revenue for a perfectly price discriminating monopolist from the sale of the third unit of output is
A) $3.
B) $4.
C) $5.
D) $6.
Q4) Compare the outcome in a market with a single-price monopoly to that in a perfectly competitive market.
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Page 15
Chapter 14: Monopolistic Competition
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Sample Questions
Q1) A monopolistically competitive firm can increase its economic profit by ________.
A) developing new products
B) producing at the efficient quantity
C) eliminating excess capacity
D) advertising less
Q2) Fresh Taste, Inc. produces organic breakfast cereals. The market for breakfast cereals is monopolistically competitive. The figure above shows the demand curve that Fresh Taste faces (D), the company's marginal revenue curve (MR), its marginal cost curve (MC), and its average total cost curve (ATC). Fresh Taste's markup is
A) more than zero but less than $1.00.
B) $3.00.
C) $2.00.
D) zero.
Q3) The firm in the figure above is in monopolistic competition. It will produce
A) 10 units.
B) 20 units.
C) 30 units.
D) 40 units.
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16
Chapter 15: Oligopoly
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Sample Questions
Q1) Russia, Iran and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel for natural gas. Each of the countries can comply with the cartel agreement or to cheat on the cartel agreement. If all countries comply, the economic profit for each will be $140 million. If one country cheats, that country earns $200 million in economic profit and the other countries will have economic losses of $10 million. If all countries cheat, they break even. What are the strategies in this game?
A) Comply with the cartel agreement or to cheat on the cartel agreement.
B) Comply with the agreement and earn $140 million in profit.
C) Cheat on the cartel agreement and earn -$10 million in profits.
D) Earn between $140 and $200 million in profits.
Q2) Oligopoly differs from perfect competition because a single competitive firm's behavior does not affect the behavior of its competitors while the behavior of a single oligopolistic firm does affect the behavior of its rivals.
A)True
B)False
Q3) Explain what a cartel is and the difficulties faced in maintaining a cartel.
Q4) Describe the characteristics of an oligopoly.
Q5) Why do most collusive agreements have difficulty surviving?
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Chapter 16: Public Choices, Public Goods, and Healthcare
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Q1) A good or service or a resource is excludable if
A) it is possible to prevent someone from enjoying its benefits.
B) it is not possible to prevent someone from enjoying its benefits.
C) its use by one person decreases the quantity available for someone else.
D) its use by one person does not decrease the quantity available for someone else.
Q2) How does the principle of minimum differentiation relate to the free-rider problem?
Q3) National defense is an example of a ________.
A) public good
B) natural monopoly good
C) common resource
D) private good
Q4) A good or service or a resource is nonrival if
A) it is possible to prevent someone from enjoying its benefits.
B) it is not possible to prevent someone from enjoying its benefits.
C) its use by one person decreases the quantity available for someone else.
D) its use by one person does not decrease the quantity available for someone else.
Q5) What is rational ignorance?
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Page 18
Chapter 17: Externalities
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Sample Questions
Q1) Individuals making decisions about how much to purchase of a product with an external benefit base their decisions on which of the following?
A) the price and marginal private benefit
B) the economically efficient output
C) the price and the marginal social benefit
D) the size of the deadweight loss
Q2) When external benefits exist, which of the following can produce the efficient amount of output? I. vouchers
II) private subsidies
III) taxes
IV) marketable permits.
A) I and II only
B) I and III only
C) II and IV only
D) III and IV only
Q3) How does the government determine the quota amount that will produce an efficient use of a common resource?
Q4) What is an individual transferable quota (ITQ)?
Q5) Why should people without children pay some tax to support local schools?
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Chapter 18: Markets for Factors of Production
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Sample Questions
Q1) A monopsony maximizes its profit by hiring the level of employment that sets
A) labor supply equal to labor demand.
B) the value of marginal product equal to the wage.
C) the value of marginal product equal to the marginal cost of labor.
D) the value of marginal product equal to the demand for labor.
Q2) Because a monopsony is the only buyer in a particular market, the
A) supply of labor to the monopsony is perfectly elastic.
B) supply of labor to the monopsony is perfectly inelastic.
C) supply of labor curve faced by the monopsony is upward sloping.
D) supply of labor curve faced by the monopsony is downward sloping.
Q3) If the wage that a competitive firm must pay its workers exceeds their value of marginal product, the firm will
A) decrease the quantity of labor it employs.
B) increase the quantity of labor it employs.
C) lower the price of the good.
D) raise the price of the good.
Q4) If the interest rate is 7.5 percent, the present value of $500 to be received three years from today is $477.50.
A)True
B)False
Page 20
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Chapter 19: Economic Inequality
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Sample Questions
Q1) Globalization means that firms recruit top talent from the global talent pool. Globalization means that the payoffs won by the contest winners ________.
A) increase in size
B) do not change in size
C) might increase, decrease, or not change depending on whether the demand for contests changes by more than, less than, or the same amount as the supply of contests.
D) decrease in size
Q2) In the above figure, if the Lorenz curve were to move closer to the diagonal line containing points b and c, the income distribution would be A) more unequal.
B) more equal.
C) unchanged.
D) More information is needed to determine how this change would affect the income distribution.
Q3) What effect does the age of a household have when estimating the degree of inequality in income among households?
Q4) Which is distributed more equally: income or wealth?
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21
Chapter 20: Uncertainty and Information
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Sample Questions
Q1) In the market for automobile insurance, adverse selection implies that A) drivers with greater risks want to buy a policy without deductibles.
B) drivers with greater risks want to buy a policy with large deductibles.
C) uninsured drivers will drive recklessly.
D) insured drivers will drive recklessly.
Q2) Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. Ashton would have the same expected utility as he currently has if his wealth was ________ and he faced no uncertainty.
A) $30,000
B) $21,000
C) $12,000
D) $9,000
Q3) Expected wealth is a weighted average in which the weights are A) average utilities. B) marginal utilities.
C) total utilities.
D) probabilities.
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Page 22