Introduction to Economics
Midterm Exam
Course Introduction
Introduction to Economics provides a foundational understanding of how societies allocate scarce resources to satisfy unlimited wants. This course explores the principles of microeconomics and macroeconomics, emphasizing the decision-making processes of individuals, firms, and governments. Topics include supply and demand, market structures, consumer behavior, national income, inflation, unemployment, and the role of government in the economy. By analyzing real-world economic issues, students develop critical thinking skills and gain insight into the economic forces that shape everyday life and global interactions.
Recommended Textbook
Foundations of Economics 6th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Q1) What is NOT true about rational choice?
A) It can result in different decisions for different individuals.
B) It involves comparing costs and benefits.
C) It might turn out not to have been the best choice after the event.
D) It is a choice that uses the available resources to best achieve the objective of the person making the choice.
E) It is the same for all individuals.
Answer: E
Q2) If the change in y = 10 and the change in x = 3,there is
A) a positive relationship between y and x.
B) a negative relationship between y and x.
C) an independent relationship between y and x.
D) no relationship between y and x.
E) a +0.33 relationship between the two variables.
Answer: A
Q3) In the figure above,what can you deduce about the slope of the curve?
Answer: The slope is positive and increasing in size as we move rightward along the curve.
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Chapter 2: The Usand Global Economies
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Q1) Of the following,the largest source of tax revenue collected by state and local governments comes from
A) individual income taxes.
B) corporate income taxes.
C) death taxes.
D) sales taxes.
E) lottery revenues.
Answer: D
Q2) In the circular flow model,rent,wages,interest,and profit paid flow from ________ through ________ to ________.
A) households; goods markets; firms as payment for goods
B) firms; factor markets; households
C) firms; goods markets; households
D) households; factor markets; firms
E) firms; goods market; firms
Answer: B
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Page 4
Chapter 3: The Economic Problem
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Q1) The above figure shows the production possibility frontier for a country.What is the opportunity cost to move from point D to point E?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) 6 tons of rice
D) 9 thousand bottles of wine
E) Nothing, it is a free lunch
Answer: D
Q2) The opportunity cost of one more slice of pizza in terms of sodas is the
A) number of pizza slices we have to give up in order to get one extra soda.
B) number of sodas we have to give up in order to get one extra pizza slice.
C) total number of sodas that we have divided by the total number of pizza slices that we have.
D) total number of pizza slices that we have divided by the total number of sodas that we have.
E) price of a pizza slice minus the price of a soda.
Answer: B
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5
Chapter 4: Demand and Supply
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Q1) Autoworkers negotiate a wage increase.How does this change affect the supply curve of cars?
A) It shifts the supply curve leftward.
B) It shifts the supply curve rightward.
C) It does not shift the supply curve or create a movement along it.
D) The supply curve will shift but there is not enough information to tell if the change shifts the supply curve rightward, leftward, or not at all.
E) It creates a movement downward along the supply curve.
Q2) An increase in the productivity of producing jeans results in
A) the quantity of jeans supplied increasing.
B) the supply of jeans increasing.
C) buyers demanding more jeans because they are now more efficiently produced.
D) buyers demanding fewer jeans because their price will fall, which signals lower quality.
E) some change but the impact on the supply of jeans is impossible to predict.
Q3) The above table gives the demand and supply schedules for cat food.What is the equilibrium price and quantity?
Q4) When does a shortage occur?
Q5) What is the difference between quantity supplied and supply?
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Chapter 5: Elasticities of Demand and Supply
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Q1) The income elasticity of demand is
A) positive for a normal good.
B) zero for an inferior good.
C) less than one for an income elastic normal good.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
Q2) When the percentage change in the quantity supplied equals the percentage change in price,the supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Q3) The figure above shows the demand curve for pizza.Using the midpoint method and moving from point A to point B,calculate the
a.percentage change in price.
b.percentage change in quantity demanded.
c.price elasticity of demand.
Q4) What does a horizontal demand curve indicate about the price elasticity of demand?
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Chapter 6: Efficiency and Fairness of Markets
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Q1) Marginal benefit curves
A) have positive slopes.
B) have negative slopes.
C) are horizontal lines.
D) are vertical lines.
E) are upside-down U-shaped curves.
Q2) Suppose a market produces 5,000 tons of wheat.At this quantity,the marginal cost exceeds the marginal benefit.This outcome could be the result of
A) a quantity regulation limiting the amount that can be produced.
B) a monopoly.
C) a subsidy.
D) an external benefit.
E) producing a public good.
Q3) Moving ________ along the marginal cost curve,the ________.
A) upward; opportunity cost of one more unit increases
B) upward; marginal cost decreases
C) downward; marginal cost increases
D) upward; opportunity cost of one more unit does not change
E) downward; opportunity cost of one more unit does not change
Q4) Why is a competitive market efficient?
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Chapter 7: Government Actions in Markets
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Q1) The demand and supply schedules for pizza are in the table above.If the government sets a maximum legal price of $2 per slice of pizza,then
A) there is a shortage of 20 slices of pizza.
B) this maximum price is an example of a price floor.
C) this maximum price is an example of a price ceiling.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Q2) The above figure shows the domestic market for tomatoes.Suppose this market is isolated from global competition and there is a support price set at $16.In this figure,what area equals the total subsidy paid to tomato farmers?
A) area E
B) area B + area C + area D + area F
C) area C + area D + area E + area G
D) area A
E) area F
Q3) Explain why low-skilled workers find that their employment opportunities are less with a minimum wage.
Q4) Discuss the inefficiencies created by a price floor.
Q5) Why do rent ceilings lead to shortages and black markets?
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Chapter 8: Taxes
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Q1) Which of the following taxes best illustrate the ability-to-pay principle of tax fairness?
A) Tuition at public universities is lower for in-state residents than for out-of-state residents.
B) The library is funded through a flat $10 tax levied on all homeowners.
C) A property tax that is proportional to the value of a home is used to fund K-12 education.
D) Free cholesterol check clinics are funded through a $0.20 tax on all prescriptions.
E) A sales tax on food pays for local police and fire protection.
Q2) Suppose the elasticity of supply of land is 0 and elasticity of demand is 2.If the government imposes a 10 percent tax on land,then
A) buyers and sellers each pay 5 percent of the tax.
B) buyers pay all of the tax.
C) sellers pay all of the tax.
D) sellers pay a smaller share of the tax than do buyers but both buyers and sellers pay some of the tax.
E) buyers pay 1/2 of the tax.
Q3) How does the elasticity of demand affect the incidence of a tax?
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Page 10
Chapter 9: Global Markets in Action
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Q1) The above figure shows the U.S.market for flip-flops.When there is no international trade,the U.S.price is ________ per flip-flop and the U.S.quantity is ________ flip-flops.
A) $12; 300,000
B) $14; 500,000
C) $12; 700,000
D) $14; 300,000
E) $14; 700,000
Q2) The above figure shows the U.S.market for chocolate.With international trade,________ is the transfer of surplus from producers to consumers.
A) area B +area C + area D
B) area B
C) area C + area D
D) area A
E) area E
Q3) What is the national security argument for restricting international trade? What is its flaw?
Q4) How do exports affect sellers' producer surplus?
Q5) What is dumping?
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Chapter 10: Externalities
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Q1) The figure above shows the market for annual influenza immunizations the United States.Area B is the
A) gain in efficiency from the illustrated subsidy.
B) remaining deadweight loss when there is the illustrated subsidy.
C) deadweight loss when there is not the illustrated subsidy.
D) equilibrium with the illustrated subsidy.
E) loss in efficiency from the illustrated subsidy.
Q2) In the figure above,when the market is unregulated and in equilibrium,marginal social cost ________ marginal benefit,and the quantity of chemical produced is
A) exceeds; above the efficient quantity
B) exceeds; below the efficient quantity
C) is below; above the efficient quantity
D) is below; below the efficient quantity
E) equals; efficient
Q3) Does the existence of the University of Oklahoma affect citizens who do not attend the University?
Q4) List and briefly define the three methods government can use to cope with an external cost,such as pollution.
Q5) Does inoculation against chicken pox have both private and external benefits?
Page 12
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Chapter 11: Public Goods and Common Resources
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Q1) Which of the following describes the principle of minimum differentiation?
A) competitors becoming identical to appeal to the largest number of clients or voters
B) minimizing the difference between marginal benefit and marginal cost
C) voters becoming highly informed to elect the best candidate
D) bureaucrats providing the most efficient level of pubic goods provision
E) minimizing the amount of free riding that occurs
Q2) In the figure above,the efficient quantity of satellites to produce is
A) 200, because this is where marginal benefit equals marginal cost.
B) 200, because this is where the market is in equilibrium.
C) anywhere below 200, i.e. where marginal benefit exceeds marginal cost.
D) anywhere above 200, i.e. where marginal benefit is below marginal cost.
E) zero, because no one is willing to pay for satellites.
Q3) How is the efficient quantity of public goods determined?
Q4) A public good
A) can only be consumed by one person at a time.
B) can be consumed simultaneously by many people.
C) is any good provided by a company owned by a member of the public.
D) is any good provided by government.
E) is both rival and excludable.
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Chapter 12: Markets With Private Information
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Q1) Dan,age 19,may have trouble buying auto insurance at a low price because insurance companies
A) have private information that he is a risky driver.
B) have private information that his signals are valid.
C) fear that he has private information that his deductible is too high.
D) fear that he has private information that he is a risky driver.
E) operate in markets in which screening is inefficient.
Q2) Adverse selection is the tendency for people who accept contracts to be those who
A) buy goods and then regret it later.
B) buy goods for more than their own reservation price.
C) want to avoid the lemons problem.
D) plan to use private information to the disadvantage of the less well-informed party.
E) engage in a number of searches larger than that specified in the contract.
Q3) Explain the concept of moral hazard.Give an example.
Q4) Most college professors are granted tenure after six years of employment.Tenure implies a lifetime appointment.What problem does this situation create,and how can colleges minimize the problem?
Q5) What is private information and what problems does it create?
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Chapter 13: Consumer Choice and Demand
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Q1) "The marginal rate of substitution of the good measured along the x-axis increases as a consumer moves downward along an indifference curve." Is the previous statement correct or not?
Q2) An increase in a consumer's budget
A) changes the relative prices of the goods.
B) changes the slope of the budget line.
C) decreases consumption possibilities.
D) increases consumption possibilities.
E) has no effect on the consumer's budget line.
Q3) We have asked Mac to rank his preferences between three market baskets,A,B,and
C.If Mac prefers B to C but does not care if he gets A or B,then
A) A is on a higher indifference curve than B.
B) B and C are on the same indifference curve.
C) Both A and B are on a higher indifference curve than C.
D) C is on a higher indifference curve than A.
E) B is on a higher indifference curve than C but it is not possible to determine whether C is on a higher, lower, or the same indifference curve as A.
Q4) What is "marginal utility?"
Q5) What is the utility-maximizing rule?
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Chapter 14: Production and Cost
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Q1) Marginal cost
A) is the difference between total cost and total fixed cost.
B) increases as the marginal product of labor increases.
C) decreases as the average product of labor increases.
D) is the change in total cost arising from a one-unit increase in output.
E) equals the change in variable cost divided by the change in fixed cost when output increases by one unit.
Q2) Diseconomies of scale is a result of
A) mismanagement.
B) difficulties of coordinating and controlling a large enterprise.
C) specialization of labor, capital, and management.
D) technological progress.
E) larger fixed costs as the firm's production increases.
Q3) The marginal product of labor equals the change in ________ from a one-unit increase in the quantity of labor.
A) total product
B) average product
C) total cost
D) the slope of the average product curve
E) the wage rate
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Chapter 15: Perfect Competition
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Q1) The above figure shows a perfectly competitive firm.If the market price is $15 per unit,the firm
A) will definitely shut down to minimize its losses.
B) will stay open to produce and will make zero economic profit.
C) will stay open to produce and will incur an economic loss.
D) will stay open to produce and will make an economic profit.
E) might shut down but more information is needed about the fixed cost.
Q2) If a perfectly competitive firm is maximizing its profit and is making an economic profit,which of the following is correct?
i.Price equals marginal revenue.
ii.Marginal revenue equals marginal cost.
iii.Price is greater than average total cost.
A) i only
B) i and ii only
C) ii and iii only
D) i and iii only
E) i, ii, and iii
Q3) Why are perfectly competitive ranchers in Montana price takers?
Q4) What four conditions define a perfectly competitive market?
Q5) In the long run,perfectly competitive firms cannot make an economic profit.Why?
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Chapter 16: Monopoly
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Q1) Patents
A) are a legal barrier to entry.
B) remove legal barriers to entry.
C) create economies of scale.
D) decrease the incentive to innovate.
E) are prohibited in the United States.
Q2) Which creates a larger deadweight loss,perfect competition or a single-price monopoly?
Q3) When economies of scale exist so that one firm can meet the entire market demand at a lower average total cost than two or more firms,
A) a natural monopoly develops.
B) the monopoly encounters competition.
C) economic profit is reduced to zero.
D) the monopoly converts all of the consumer surplus into economic profit.
E) there is always the opportunity to price discriminate.
Q4) Are some monopolies created by government legislation that gives a firm the unique right to produce a good or service?
Q5) How can managers of natural monopolies exaggerate their costs?
Q6) Why are water companies considered a natural monopoly?
Page 18
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Chapter 17: Monopolistic Competition
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Q1) Once a firm in monopolistic competition has determined how much to produce,the firm determines its price by referring to its
A) demand curve.
B) marginal cost curve.
C) marginal revenue curve.
D) average total cost curve.
E) average variable cost curve.
Q2) For a firm in monopolistic competition,define efficient scale and excess capacity.Briefly explain each.
Q3) A firm in monopolistic competition definitely incurs an economic loss if
A) price equals marginal revenue.
B) price is less than average total cost.
C) marginal revenue equals marginal cost.
D) marginal revenue is less than average total cost.
E) price is greater than marginal cost.
Q4) What do demand and marginal revenue curves look like in monopolistic competition? How do they compare to the demand and marginal revenue curves in perfect competition and monopoly?
Q5) Why would a firm in a monopolistically competitive industry advertise?
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Chapter 18: Oligopoly
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Q1) In an oligopoly,output is
A) less than the output in monopoly.
B) greater than the output in perfect competition.
C) in all circumstances the same as the output in perfect competition.
D) somewhere between the output in monopoly and that in perfect competition outcomes.
E) in all circumstances the same as the output in monopoly.
Q2) The first antitrust law in the United States was the
A) Sherman Act, passed in 1960.
B) Clayton Act, passed in 1914.
C) Clayton Act, passed in 1830.
D) Sherman Act, passed in 1890.
E) Sherman Act, passed in 1933.
Q3) If an oligopolistic game is repeatedly played,which of the following can occur?
A) Players can learn ways to cooperate and make an economic profit.
B) The competitive price and output consistently is the final result.
C) Firms can learn how to cheat more effectively on the other player.
D) One firm will be driven out of business.
E) An implicit agreement is reached in which one firm constantly cheats on the cartel and the other firm complies with it.
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Chapter 19: Markets for Factors of Production
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Q1) Why does an increase in the minimum wage increase the demand for union labor?
Q2) In the market for land,the supply curve is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
Q3) Oil is an example of
A) a nonrenewable natural resource.
B) a renewable natural resource.
C) physical capital.
D) a resource for which the true value cannot be measured.
E) a resource with a perfectly inelastic demand.
Q4) In the market for land,an increase in demand ________ the equilibrium rent of land and ________ the equilibrium quantity.
A) raises; does not change
B) lowers; increases
C) raises; increases
D) does not change; increases
E) does not change; does not change
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Chapter 20: Economic Inequality
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Q1) How does the supply curve of high-skilled workers compare to the supply curve of low-skilled workers?
A) Because skills are costly to acquire, at a given wage rate the quantity supplied of high-skilled workers is greater than that of low-skilled workers.
B) Because skills are costly to acquire, at any given wage rate the quantity supplied of high-skilled workers is less than that of low-skilled workers.
C) Because skills are inexpensive to acquire, at any given wage rate the quantity supplied of high-skilled workers is less than that of low-skilled workers.
D) Because skills are inexpensive to acquire, at any given wage rate the quantity supplied of high-skilled workers is greater than that of low-skilled workers.
E) None of the above answers is correct.
Q2) How does an increase in the cost to acquire a skill affect the vertical distance between the supply curves of high-skilled and low-skilled workers?
Q3) Which is distributed more equally: income or wealth?
Q4) What is "human capital"? How is it important in the determination of a worker's wage rate?
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