Introduction to Economic Analysis
Exam Materials
Course Introduction
Introduction to Economic Analysis offers students a foundational understanding of how economic principles are used to examine and interpret real-world markets and decision-making processes. This course introduces core concepts such as supply and demand, market equilibrium, elasticity, consumer and producer behavior, and the role of government in markets. Emphasis is placed on applying analytical frameworks to evaluate various economic issues and policies, encouraging students to develop critical thinking skills and a deeper appreciation for the tools used by economists to assess and influence economic outcomes.
Recommended Textbook Principles of Economics 7th Edition by
Robert H. Frank
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28 Chapters
4171 Verified Questions
4171 Flashcards
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1.00. How should Pat get to work?
A)Pat should take the bus because it costs $0.50 less than driving.
B)Pat should drive because it saves half an hour relative to taking the bus.
C)Pat should drive if saving half an hour is worth $0.50 or more.
D)Pat should take the bus if saving half an hour is worth $0.50 or more.
Answer: C
Q2) The Scarcity Principle states that:
A)people don't have enough money to buy what they want.
B)society will eventually run out of resources.
C)with limited resources, having more of one thing means having less of another.
D)some countries have fewer resources than others.
Answer: C
Q3) The opportunity cost of an activity includes the value of:
A)all of the alternatives that must be forgone.
B)the next-best alternative that must be foregone.
C)the least-best alternative that must be foregone.
D)the chosen activity minus the value of the next-best alternative.
Answer: B
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Page 3
Chapter 2: Comparative Advantage
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Sample Questions
Q1) All else equal, the jobs that are the least likely to be outsourced are those that:
A)do not involve face-to-face contact.
B)can be done by a computer.
C)require face-to-face communication.
D)can be broken down into series of well-defined steps.
Answer: C
Q2) The production possibilities curve shows:
A)the minimum amount of one good that can be produced for every possible production level of the other good.
B)how increasing the resources used to produce one good increases the production of the other good.
C)the maximum amount of one good that can be produced for every possible production level of the other good.
D)how increasing the production of one good allows production of the other good to also rise.
Answer: C
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Chapter 3: Supply and Demand
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Sample Questions
Q1) A seller's reservation price is generally equal to:
A)the buyer's reservation price.
B)the seller's average cost.
C)the seller's marginal cost.
D)the market price.
Answer: C
Q2) Equilibrium price and quantity are determined by:
A)demand.
B)supply.
C)government regulations.
D)both supply and demand.
Answer: D
Q3) If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are:
A)complementary goods.
B)substitute goods.
C)normal goods.
D)elastically demanded.
Answer: A
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Page 5
Chapter 4: Elasticity
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Sample
Questions
Q1) If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1 percent, quantity demanded would:
A)increase by 0.33 percent.
B)decrease by 0.33 percent.
C)increase by 3 percent.
D)decrease by 3 percent.
Q2) For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ________ in the short run than in the long run.
A)higher
B)lower
C)the same
D)more variable
Q3) On a given linear demand curve, as price increases demand becomes:
A)more elastic.
B)less elastic.
C)more negative.
D)more variable.
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Chapter 5: Demand
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Sample Questions
Q1) Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility?
A)No. He should shift his spending away from ice cream and towards frozen pizza.
B)No. He should buy less frozen pizza and less ice cream.
C)No. He should shift his spending away from frozen pizza and towards ice cream.
D)Yes. He should not change his spending on frozen pizza and ice cream.
Q2) The rational spending rule is derived from the consumer's desire to:
A)maximize utility.
B)minimize expenditures.
C)obtain the lowest possible price.
D)maximize the number of goods purchased.
Q3) If marginal utility is positive, then as consumption increases:
A)the consumer will not experience diminishing marginal utility.
B)total utility will not change.
C)total utility will increase.
D)the demand curve will have a positive slope.
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Page 7
Chapter 6: Perfectly Competitive Supply
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Sample Questions
Q1) Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?
A)The firm should shutdown if its total revenue is less than its variable cost.
B)The firm will earn a positive economic profit.
C)The firm is maximizing its profit.
D)The firm should produce more if its economic profit is positive.
Q2) Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ________ in the short run, and will ________ in the long run.
A)shut down; reopen for business
B)earn a profit; earn a loss
C)earn a loss; earn a profit
D)not shut down; exit the industry
Q3) An increase in the price a firm receives for its output will lead the firm to:
A)expand output.
B)leave output unchanged and earn greater profits.
C)leave output unchanged and earn smaller losses.
D)reduce output.
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Page 8
Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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Sample Questions
Q1) Free entry and exit of firms is a characteristic of:
A)all industries in the U. S. economy.
B)perfectly competitive industries.
C)centralized economies.
D)industries in which firms are earning positive economic profit.
Q2) If there is excess demand in a market, then this suggests that:
A)there is no way to help some people without harming others.
B)there is an opportunity for mutually beneficial trades.
C)the market price is above the equilibrium price.
D)the market is in equilibrium.
Q3) Generally, ________ motivates firms to enter an industry, while ________ motivates firms to exit an industry.
A)economic profit; economic loss
B)accounting profit; accounting loss
C)accounting profit; economic loss
D)economic profit; accounting loss
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9
Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
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Sample Questions
Q1) A monopoly that results from economies of scale is called a(n):
A)antitrust violator.
B)large-scale monopolist.
C)natural monopoly.
D)cost-plus firm.
Q2) When a perfectly competitive firm sells additional units of output, ________, and when a monopolist sells additional units of output, ________.
A)total revenue always rises; total revenue could rise, fall, or remain unchanged
B)total revenue does not change; total revenue rises
C)marginal revenue stays the same; marginal revenue rises
D)total revenue rises; total revenue falls
Q3) A perfectly price discriminating monopolist charges each buyer:
A)exactly his or her marginal cost.
B)more than his or her reservation price.
C)exactly his or her reservation price.
D)the perfectly competitive equilibrium price.
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Chapter 9: Games and Strategic Behavior
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Sample Questions
Q1) According to the text, everyone shouts at a party in order to be heard. If instead everyone spoke at a normal volume people would still be heard, but people continue to shout because:
A)shouting is a dominated strategy.
B)shouting is a dominant strategy.
C)shouting can be sustained using a tit-for-tat strategy.
D)the payoff matrix is unknown to the people at a party.
Q2) A ________ describes the possible moves in a game in sequence and lists the payoffs to each possible combination of moves.
A)decision tree
B)payoff matrix
C)game graph
D)multi-period game
Q3) In a repeated prisoner's dilemma, players:
A)never learn to play their dominant strategies.
B)can sustain cooperation by employing a tit-for-tat strategy.
C)can sustain cooperation by playing their dominant strategy.
D)always play their dominant strategy.
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11
Chapter 10: An Introduction to Behavioral Economics
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Sample Questions
Q1) According to the adaptive rationality standard, one reason people might rationally choose to have preferences that are not narrowly self-interested is that:
A)even rational people sometimes make irrational choices.
B)doing so could help them solve commitment problems.
C)they do not know how to act in their own self-interest.
D)they have no other choice.
Q2) The present aim standard of rationality:
A)assumes that people's goals are themselves a choice variable and that people's choices about which goals to pursue are made efficiently.
B)takes people's goals as given and assumes that people are efficient at pursuing whatever goals they happen to hold at the moment of action.
C)assumes that people act in their own self-interest because cooperating with others is irrational.
D)argues that people are only able behave rationally if they are aware of how their actions affect others.
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Chapter 11: Externalities, Property Rights, and the Environment
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Sample Questions
Q1) Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Declaring the card room a non-smoking area with no opportunity to negotiate would:
A)decrease total economic surplus.
B)increase total economic surplus.
C)leave total economic surplus unchanged, but redistribute benefits.
D)efficiently solve the externality problem.
Q2) If the production of oranges generates an external benefit, then we would expect the market equilibrium quantity of oranges to be:
A)equal to the socially optimal quantity.
B)less than the socially optimal quantity.
C)greater than the socially optimal quantity.
D)equal to the socially optimal quantity plus the external benefit.
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Page 13
Chapter 12: The Economics of Information
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Sample Questions
Q1) Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. If buyers are risk-neutral and know the that 80 percent of the houses for sale have a solid foundation while 20 percent have a cracked foundation, then the owners of houses with a solid foundation will find that:
A)potential buyers are offering more than $200,000.
B)potential buyers are offering $200,000.
C)potential buyers are offering $180,000.
D)it is not worthwhile to sell their houses.
Q2) A risk-averse individual will:
A)never accept any gamble.
B)accept a fair gamble.
C)only choose certain events.
D)accept only better-than-fair gambles.
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Page 14
Chapter 13: Labor Markets, Poverty, and Income Distribution
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Sample Questions
Q1) The earned income tax credit (or EITC):
A)reduces the tax rate on investment income.
B)provides tax credits to firms who hire low-income workers.
C)reduces the sales tax paid by low-income workers.
D)gives low-income workers credits on their federal income taxes.
Q2) A firm is unlikely to hire a worker if:
A)the additional revenue generated by hiring the worker is less than his or her wage.
B)the additional output a firms gets by hiring the worker is greater than his or her wage.
C)there are diminishing marginal returns to labor.
D)the minimum wage set by law is less than the equilibrium wage in the market.
Q3) A minimum wage law prohibits employers from paying workers less than a specified hourly wage. If the minimum wage is above the equilibrium wage:
A)there will be an excess supply of labor.
B)there will be an excess demand for labor.
C)it creates a price ceiling.
D)employment levels will not fall.
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Page 15
Chapter 14: Public Goods and Tax Policy
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Sample Questions
Q1) The problems of externalities and poorly formed property rights are:
A)minor in modern economies.
B)among several rationales for the existence of government.
C)better solved by private rather than government action.
D)the only two legitimate reasons for creating government.
Q2) Suppose the latest Hunger Games movie first played in theaters, where it sold out during its opening week. Several months later it was available on pay-per-view TV. Two years later it was shown on CBS, a broadcast television network. When the movie was playing in theaters, it was a ________ good; when it was available on pay-per-view TV, it was a ________ good; and when it was shown on CBS, it was a ________ good.
A)private; public; public
B)private; collective; public
C)collective; private; commons
D)collective; commons; public
Q3) The combination of pork barrel spending and logrolling leads to:
A)inefficiently large government spending.
B)the largest net benefit for society.
C)the quick termination of projects that are wasteful.
D)under provision of public goods.
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Page 16
Chapter 15: International Trade and Trade Policy
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Sample Questions
Q1) In an open economy, a society's consumption possibilities are typically ________ its production possibilities.
A)less than B)equal to C)unrelated to D)greater than
Q2) Amy can produce either 5,000 pounds of cheese or 20 cars per year. Mike can produce either 5,000 pounds of cheese or 10 cars per year. By the principle of comparative advantage, Amy should specialize in producing A)both cheese and cars.
B)cheese.
C)cars.
D)neither cheese nor cars.
Q3) China exports toys to the United States; in a closed economy China must have a domestic price that is ________ the world price of toys. A)less than B)greater than C)equal to D)close to
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Page 17
Chapter 16: Macroeconomics: The Birds Eye View of the Economy
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Sample Questions
Q1) "Social Security should be privatized to get the government out of the retirement-financing business," is an example of a ________ statement about ________ policy.
A)positive; fiscal
B)normative; structural
C)positive; structural
D)normative; monetary
Q2) If its exports are greater than its imports, then a country has a:
A)government budget deficit.
B)trade surplus.
C)government budget surplus.
D)trade deficit.
Q3) In Econland population and average labor productivity are constant. If a larger proportion of the population becomes employed workers, then total output will ________ and output per person will ________.
A)increase; increase
B)decrease; decrease
C)remain constant; remain constant
D)decrease; remain constant
18
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Chapter 17: Measuring Economic Activity: GDP and Unemployment
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Sample Questions
Q1) Which of the following would increase the investment component of U.S. GDP?
A)You purchase a vacation at Disney World in Florida.
B)You purchase shares of Disney stock.
C)Disney World purchases tires for the monorail from a firm in Ohio.
D)A French man purchases a vacation at a Disney theme park in France.
Q2) Real GDP is measured in ________ prices; nominal GDP is measured in ________ prices.
A)current; base year
B)base year; current
C)current; current
D)base year; base year
Q3) A measure of GDP in which quantities produced are valued at the prices of a fixed base year is called:
A)real GDP.
B)nominal GDP.
C)base GDP.
D)current GDP.
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Page 19
Chapter 18: Measuring the Price Level and Inflation
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Sample Questions
Q1) If the nominal interest rate is 8 percent and the real interest rate is 3 percent, then the inflation rate equals:
A)3 percent.
B)5 percent.
C)8 percent.
D)11 percent.
Q2) Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5 percent and household incomes increase by 5 percent, we should conclude that real incomes of households have:
A)increased.
B)stayed constant.
C)decreased.
D)increased more slowly than has inflation.
Q3) Hyperinflation is:
A)frequently experienced in the United States.
B)very erratic inflation.
C)an extremely high rate of inflation.
D)an extremely low rate of inflation.
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Chapter 19: Economic Growth, Productivity, and Living Standards
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Sample Questions
Q1) People who run businesses on a day-to-day basis are called:
A)entrepreneurs.
B)engineers.
C)business managers.
D)technology experts.
Q2) Economic growth may face environmental limits because:
A)economic growth can take the form of new, different, and "cleaner" goods and services.
B)economic growth may lead to less, not more, pollution.
C)the market mechanism mobilizes resources to deal with shortages.
D)global environmental problems are not handled by markets or national governments.
Q3) A government policy that allows retirement savings to accumulate tax-free is an example of a policy to promote economic growth by:
A)increasing human capital.
B)increasing physical capital.
C)improving technology.
D)increasing the availability of natural resources.
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Page 21
Chapter 20: The Labor Market: Workers, Wages, and Unemployment
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Sample Questions
Q1) Health and safety regulations in the labor market:
A)are always efficient because they improve working conditions. B)should be evaluated by comparing their costs to their benefits. C)are necessarily inefficient if they impose additional costs on employers. D)can lead to an increase in frictional unemployment.
Q2) A "two-tier" labor market in the United States refers to plenty of jobs for ________ workers and few jobs for ________ workers.
A)highly-skilled; unskilled
B)unskilled; highly-skilled
C)old; young
D)eastern; western
Q3) Holding other factors constant, an increase in the capital stock ________ the real wage and ________ employment.
A)increases; increases
B)increases; decreases
C)increases; does not change
D)decreases; increases
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Page 22
Chapter 21: Saving and Capital Formation
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Sample Questions
Q1) Jordan has the following assets and liabilities: \[\begin{array} { l | r }
\hline \text { Tuo cars } & \$ 10,000 \\
\text { House } & \$ 200,000 \\
\text { Mortgage } & \$ 100,000 \\
\hline \text { Cash } & \$ 1,000 \\
\text { Car loars } & \$ 3,000 \\
\hline \text { Checkire accourtbalarce } & \$ 2,000 \\
\text { Credit card balarce } & \$ 1,000
\end{array}\]
What is the value of Jordan's liabilities?
A)$100,000
B)$104,000
C)$213,000
D)$317,000
Q2) Liabilities are:
A)current income minus spending on current needs.
B)the debts one owes.
C)saving minus investment.
D)anything of value one owns.
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Page 23
Chapter 22: Money Prices and the Federal Reserve
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Q1) In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ________, which led to
A)reduced the amount of currency held by the public; a smaller money supply
B)increased bank reserves; a larger reserve/deposit ratio
C)printed large quantities of paper money; hyperinflation
D)ordered the central bank to sell government bonds; an increase in the money supply
Q2) If the public switches from using cash for most transactions to using checks instead, then all else equal, the money supply will:
A)increase.
B)decrease.
C)not change.
D)either increase or decrease.
Q3) In the long run, countries with higher rates of money growth usually have:
A)higher rates of inflation.
B)lower rates of inflation.
C)faster growth rates of real output.
D)smaller budget deficits.
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Chapter 23: Financial Markets and International Capital
Flows
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Q1) One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually rose to $1,019. The one-year interest rate must be:
A)6 percent.
B)5 percent.
C)3 percent.
D)2 percent.
Q2) Decentralized market-based financial systems improve the allocation of saving by:
A)ensuring capital gains exceed dividend payments.
B)eliminating the need for commercial banks or other financial intermediaries.
C)matching net capital inflows to net capital outflows.
D)providing information and risk-sharing services.
Q3) When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital ________ the United States.
A)imports increase; outflow from B)imports decrease; inflow to C)imports increase; inflow to D)exports increase; outflow from
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Chapter 24: Short-Term Economic Fluctuations: An Introduction
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Q1) Typically, the unemployment rate ________ during a recession and ________ during an expansion.
A)rises; rises even more
B)rises; falls
C)rises; does not change D)falls; rises
Q2) A recession occurs when ________, when ________, or when both of these occur.
A)potential output grows slowly; actual output falls below potential output
B)potential output grows slowly; actual output rises above potential output
C)potential output grows rapidly; actual output equals potential output
D)potential output grows rapidly; actual output falls below potential output
Q3) If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals:
A)-1 percent.
B)1 percent.
C) 1.2 percent.
D)11 percent.
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Chapter 25: Spending and Output in the Short Run
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Q1) All of the following would be included in planned aggregate expenditure EXCEPT:
A)purchases of services provided by government employees.
B)planned changes in inventories.
C)sales to foreigners of domestically-produced goods.
D)social security payments.
Q2) If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*)equals 11,000, then government purchases must ________ to eliminate any output gap.
A)increase by 200
B)increase by 1,000
C)increase by 5,000
D)decrease by 200
Q3) Unplanned inventory investment equals zero when:
A)planned investment is greater than actual investment.
B)planned investment is less than actual investment.
C)planned investment equals actual investment.
D)expected sales are greater than actual sales.
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Q1) When Argentines increase their savings in U.S. dollars, the U.S. money:
A)supply curve shifts left.
B)supply curve shifts right.
C)demand curve shifts right.
D)demand curve shifts left.
Q2) The decision about the forms in which to hold one's wealth is called the ________ decision.
A)Taylor
B)portfolio allocation
C)Fisher effect
D)life-cycle
Q3) According to the Taylor rule, the Federal Reserve ________ the real interest rate as the output gap increases and ________ the real interest rate as the inflation rate increases.
A)lowers; lowers B)raises; lowers C)lowers; raises
D)raises; raises
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28
Chapter 27: Aggregate Demand, Aggregate Supply, and Inflation
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Sample Questions
Q1) When no output gap exists actual output ________ potential output and the rate of inflation will tend to ________.
A)exceeds; increase
B)exceeds; decrease
C)is less than; decrease
D)equals; remain the same
Q2) Starting from long-run equilibrium, a large decrease in government purchases will result in a(n)________ gap in the short-run and ________ inflation and ________ output in the long-run.
A)expansionary; higher; potential
B)recessionary; lower; lower
C)expansionary; lower; potential
D)recessionary; lower; potential
Q3) If the Federal Reserve lowers its target inflation rate, the monetary policy reaction function ________ and the aggregate demand curve ________.
A)shifts upward to the left; shifts to the right
B)shifts downward to the right; shifts to the right
C)shifts upward to the left; shifts to the left
D)shifts downward to the right; shifts to the left
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Chapter 28: Exchange Rates and the Open Economy
Available Study Resources on Quizplus for this Chatper
157 Verified Questions
157 Flashcards
Source URL: https://quizplus.com/quiz/45070
Sample Questions
Q1) If the nominal exchange rate is 4 Israeli shekels per U.S. dollar, and 0.178 Jordanian dinars per Israeli shekel, then there are ________ Jordanian dinars per U.S. dollar.
A)0.712
B)0.045
C)0.025
D)5.618
Q2) The real exchange rate is the:
A)price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency.
B)quantity of foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market.
C)rate at which two currencies can be traded for each other.
D)nominal exchange rate adjusted for domestic inflation.
Q3) The gold standard is an example of a ________ exchange rate system.
A)fixed
B)flexible
C)nominal
D)dollarized
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