Economics I Final Test Solutions
Course Introduction
Economics I provides an introduction to the fundamental concepts and principles of economics, focusing primarily on microeconomics. The course covers topics such as supply and demand, market equilibrium, elasticity, consumer and producer behavior, and the functioning of competitive and non-competitive markets. Students will explore how individuals and firms make economic decisions, the role of government in the economy, and the impact of market structures on resource allocation and efficiency. Through theoretical frameworks and practical examples, this course lays the groundwork for understanding how economic systems operate and how economic agents interact within these systems.
Recommended Textbook
Microeconomics 1st Canadian Edition by
R. Glenn Hubbard
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17 Chapters
2441 Verified Questions
2441 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Microeconomics is the study of
A)how households and firms make choices.
B)the economy as a whole.
C)the global economy.
D)topics such as unemployment, inflation, and economic growth.
Answer: A
Q2) Which of the following is a positive economic statement?
A)People should not buy SUVs.
B)The government should mandate electric automobiles.
C)Scarcity necessitates that people make trade-offs.
D)Foreign workers should not be allowed to work for lower wages than the citizens of a country.
Answer: C
Q3) What are some of the reasons given for the increase in coffee prices?
Answer: The reasons include bad weather in Colombia, wages, and the actions of individual firms.
Q4) What is a centrally planned economy?
Answer: A centrally planned economy is an economy in which the government decides how economic resources will be allocated.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) Refer to Figure 2.8.One segment of the circular flow diagram in the figure shows the flow of labour services from market K to economic agents J.What is market K and who are economic agents J?
A)K = factor markets; J = households
B)K = product markets; J = households
C)K = factor markets; J = firms
D)K = product markets; J = firms
Answer: C
Q2) In the circular flow model, households supply resources such as labour services in the product market.
A)True
B)False
Answer: True
Q3) Which of the following statements about a simple circular flow model is false?
A)Producers are buyers in the factor market and sellers in the product market.
B)Households are neither buyers nor sellers in the input market.
C)Producers are buyers in the factor market.
D)Households are sellers in the product market.
Answer: B
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) You are given the following market data for Venus automobiles in Saturnia.
Demand: P = 200 - 0.25Q
Supply: P = 130 + 0.10Q
Where P = Price and Q = Quantity.
A)Calculate the equilibrium price and quantity.
B)Calculate the consumer surplus in this market.
C)Calculate the producer surplus in this market.
Answer: A.PRICE = $150; QUANTITY = 200
b.Consumer surplus = $5,000
c.Producer Surplus = $2,000
Q2) Refer to Table 3.3.The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick.The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units.What is the value of economic surplus in this market?
A)$300 thousand
B)$600 thousand
C)$1,200 thousand
D)$1,600 thousand
Answer: A
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) 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
Q2) Refer to Figure 4.5.What is the value of the deadweight loss after the imposition of the ceiling?
A)$50,000
B)$125,000
C)$175,000
D)$260,000
Q3) Which of the following is not a result of government price controls?
A)Some people win and some people lose.
B)Price controls benefit poor consumers but harm producers and wealthy consumers.
C)Price controls decrease economic efficiency.
D)A deadweight loss will occur.
Q4) Refer to Figure 4.7 which shows the market for vitamins.Suppose the government imposes a price ceiling of P .How will the price ceiling affect the quantity supplied, quantity demanded and quantity exchanged?
6
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) Refer to Figure 5.4.The marginal cost of reducing pollution curve is the same curve as
A)the supply of pollution reduction curve.
B)the demand for pollution reduction curve.
C)the negative externality curve.
D)the value of pollution reduction curve.
Q2) How does a negative externality in production reduce economic efficiency?
Q3) A negative externality exists if
A)there are price controls in a market.
B)there are quantity controls in a market.
C)the marginal social cost of producing a good or service exceeds the private cost.
D)the marginal private cost of producing a good or service exceeds the social cost.
Q4) Which of the following is a source of market failure?
A)unforeseen circumstances which leads to the bankruptcy of many firms
B)a lack of government intervention in a market
C)incomplete property rights or inability to enforce property rights
D)an inequitable income distribution
Q5) State the Coase theorem.
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) If a firm's goal is to maximize revenue, it will price its product to correspond to the unit-elastic segment of its demand curve.
A)True
B)False
Q2) If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is A)elastic.
B)inelastic.
C)unit-elastic.
D)perfectly elastic.
Q3) If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is A)unit-elastic.
B)perfectly elastic.
C)relatively inelastic.
D)relatively elastic.
Q4) Explain the relationship between price elasticity of demand and total revenue.
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Chapter 7: Comparative Advantage and the Gains From International Trade
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) Refer to Figure 7.3.With a quota in place, what is the quantity consumed in the domestic market and how much of this is supplied by domestic producers?
A)Domestic consumption equals 28 thousand kilograms of which 18 thousand kilograms are produced by domestic producers.
B)Domestic consumption equals 40 thousand kilograms of which 22 thousand kilograms are produced by domestic producers.
C)Domestic consumption equals 34 thousand kilograms of which 16 thousand kilograms are produced by domestic producers.
D)Domestic consumption equals 34 thousand kilograms of which 18 thousand kilograms are produced by domestic producers.
Q2) Distinguish between a voluntary export restraint and a quota.
Q3) Japan has developed a comparative advantage in designing and producing automobiles.The source of its comparative advantage in these products is
A)abundant supplies of natural resources.
B)a favorable climate.
C)a strong central government.
D)technology.
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Page 9
Chapter 8: Consumer Choice and Behavioral Economics
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.
A)True
B)False
Q2) Refer to Figure 8.1.When the price of hoagies (sandwiches)increases from $5.00 to $5.75, quantity demanded decreases from Q to Q .This change in quantity demanded is due to
A)the price and output effects.
B)the income and substitution effects.
C)the fact that marginal willingness to pay falls.
D)the law of diminishing marginal utility.
Q3) When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to
A)the substitution effect.
B)the income effect.
C)the deadweight loss effect.
D)the elasticity effect.
Q4) Why might network externalities result in products that contain inferior technologies?
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Chapter 9: Technology, Production, and Costs
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169 Verified Questions
169 Flashcards
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Sample Questions
Q1) Refer to Table 9.3.What is the average total cost of production when the firm produces 120 lanterns?
A)$1,680
B)$72
C)$14
D)$12.3
Q2) Refer to Table 9.1.What is the marginal product of the 4th worker?
A)137 pounds
B)50 pounds
C)12.5 pounds
D)5 pounds
Q3) The slope of an isocost line determines the marginal rate of substitution.
A)True
B)False
Q4) Refer to Figure 9.7.The lines shown in the diagram are isocost lines.A movement from CE to BD occurs when
A)the price of capital increases while the price of labour remains unchanged.
B)the price of labour decreases while the price of capital remains unchanged.
C)the price of capital increases while the price of labour decreases.
D)the price of capital decreases while the price of labour increases.
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Chapter 10: Firms in Perfectly Competitive Markets
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?
A)The equilibrium price is likely to increase and profits are likely to remain unchanged.
B)The equilibrium price is likely to remain unchanged and profits are likely to increase.
C)The equilibrium price is likely to decrease and profits are likely to decrease.
D)The equilibrium price is likely to increase and profits are likely to increase.
Q2) If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is
A)the minimum efficient scale.
B)where maximum economic profit is earned by producers.
C)where firm profit is large enough to finance research and development.
D)one which guarantees economic profit.
Q3) Under what conditions should a competitive firm shut down in the short run?
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12
Chapter 11: Monopolistic Competition
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140 Flashcards
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Sample Questions
Q1) In the highly competitive fast-food restaurant market, brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.
A)True
B)False
Q2) Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118, then to maximize profits the firm should increase its output.
A)True
B)False
Q3) A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant. A)True
B)False
Q4) How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?
Q5) What is the difference between the terms "marketing" and "advertising"?
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Chapter 12: Oligopoly: Firms in Less Competitive Markets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Refer to Figure 12.4.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?
A)In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria.
B)In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium.
C)Either offer of $30 or $40 per copy of the software package is accepted and these two equilibria are subgame-perfect equilibria.
D)Either offer of $30 or $40 per copy of the software package is accepted but these are not are subgame-perfect equilibria.
Q2) Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.
Q3) If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.
A)True
B)False
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Page 14
Chapter 13: Monopoly and Antitrust Policy
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) Explain why the monopolist has no supply curve?
Q2) Refer to Figure 13.9.Erickson Power is a natural monopoly because A)it is a power company and all power companies are natural monopolies. B)average total cost is still declining when it intersects demand. C)of its continually declining marginal revenue curve as output rises. D)its marginal cost lies entirely below its long-run average cost.
Q3) Refer to Figure 13.1.The firm's profit-maximizing price is
A)P .
B)P .
C)P .
D)P .
Q4) Refer to Figure 13.5.At the profit-maximizing quantity, what is the difference between the monopoly's price and the marginal cost of production?
A)$8
B)$11.50
C)$21
D)There is no difference.
Q5) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
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Chapter 14: The Markets for Labour and Other Factors of Production
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) An individual's labour supply curve shows
A)the maximum wage rates offered to that individual by various potential employers.
B)the relationship between wages and the quantity of labour that she is willing to supply.
C)the relationship between wages and the quantity of labour that a firm is willing to employ.
D)the relationship between the quantity of hours worked and total income earned by that individual.
Q2) Marginal revenue product can be calculated using the formula marginal product × output price
A)only if output price is constant.
B)only if the marginal product of labour is constant.
C)only if the both marginal product of labour and the output price are constant.
D)only if the firm has market power in the labour market.
Q3) Refer to Figure 14.3.Which of the following is true at W ?
A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is positively sloped.
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Chapter 15: Public Choice, Taxes, and the Distribution of Income
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Suppose in an effort to raise tax revenue, British Columbia decides to legalize the sale of marijuana.The province will charge a tax of $10 per gram on each sale, and the province claims that retailers will bear the entire burden of this tax.Draw a graph illustrating the situation where retail outlets would bear the entire tax burden of $10 per gram of marijuana.Explain what would need to be true about the demand for marijuana for retailers to bear the entire burden of this tax, and if this would likely occur if marijuana sales were actually legalized.
Q2) Define logrolling.Explain why logrolling often results in legislation that benefits the economic interests of a few, while harming the interests of a larger group of people.
Q3) Exemptions and deductions are used
A)to add to taxes that must be paid.
B)by taxpayers to reduce the amount of income subject to tax.
C)to determine the type of tax structure.
D)to determine what items are subject to sales taxes.
Q4) If your income is $40,000 and you pay taxes of $4,650, what is your average tax rate? Show your work.
Q5) What is the relationship between market failure and government failure?
Page 17
Q6) Describe the main factors economists believe cause inequality of income.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Refer to Figure 16.4.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?
A)320 units
B)480 units
C)560 units
D)640 units
Q2) What is the difference between price discrimination and other forms of discrimination?
Q3) Arnold's Airport Transport provides passenger transportation to and from the local airport.Arnold charges a flat rate of $30 per person for round-trip service, and he gives a $5 discount to senior citizens.Assume Arnold's marginal cost is $3.00 per person.Draw two graphs, one showing demand and marginal cost for his $30 customers, of which he has 300 per month, and the other graph showing demand and marginal cost for his senior citizen customers, of which he has 100 per month.If Arnold charged all of his customers $30, he would have 325 customers per month.
Q4) What is odd pricing? Why do some merchants use odd pricing?
Q5) Under what circumstances will the law of one price hold, and when might it not hold?
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Chapter 17: Firms, the Stock Market, and Corporate Governance
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Who controls a partnership?
A)the owners
B)stockholders
C)bondholders
D)employees
Q2) What is accounting profit?
A)gross revenue minus explicit costs
B)gross revenue minus implicit costs
C)gross revenue minus explicit and implicit costs
D)the same as economic profit
Q3) If a corporation goes bankrupt, which of the following has first claim on the firm's assets?
A)stockholders
B)the state where chartered
C)employees
D)bondholders
Q4) Corporations are legally owned by their shareholders.
A)True
B)False
Q5) How can a partnership raise funds needed for firm expansion?
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