Introduction to Economics
Textbook Exam Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of the principles and concepts that drive economic activity at both the individual and societal levels. The course explores the differences between microeconomics and macroeconomics, examining topics such as supply and demand, market equilibrium, consumer behavior, production and cost, and the role of government in the economy. Through real-world examples and case studies, students will learn how economic theory can be applied to analyze current events, policy debates, and everyday decision-making. Emphasis is placed on critical thinking, problem-solving, and the development of an economic perspective for informed citizenship and future studies in economics.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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Sample Questions
Q1) (Last Word)A caller to a radio talk show states that oil companies are "greedy price gougers." This is an example of:
A) loaded terminology.
B) the "after this,therefore because of this fallacy."
C) the fallacy of composition.
D) the economic perspective.
Answer: A
Q2) You should decide to go to a movie:
A) if the marginal cost of the movie exceeds its marginal benefit.
B) if the marginal benefit of the movie exceeds its marginal cost.
C) if your income will allow you to buy a ticket.
D) because movies are enjoyable.
Answer: B
Q3) Purposeful behavior means that:
A) people are selfish in their decision making.
B) people weigh costs and benefits to make decisions.
C) people are immune from emotions affecting their decisions.
D) decision makers do not make mistakes when weighing costs and benefits.
Answer: B
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Page 3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) Which of the following characteristics is least unique to a market system?
A) Private ownership of property resources.
B) Competition among buyers and sellers pursuing monetary returns.
C) The widespread use of money.
D) Freedom of enterprise and choice.
Answer: C
Q2) The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:
A) "Through government leadership and direction."
B) "Through the guiding function of prices and the incentive function of profits."
C) "Through training and retraining programs."
D) "Through trial and error."
Answer: B
Q3) The invisible hand refers to the many indirect controls that the federal government imposes in a market system.
A)True
B)False
Answer: False
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) The upward slope of the supply curve reflects the:
A) principle of specialization in production.
B) law of supply.
C) fact that price and quantity supplied are inversely related.
D) law of diminishing marginal utility.
Answer: B
Q2) Which of the following would not shift the demand curve for beef?
A) A widely publicized study that indicates beef consumption increases one's cholesterol.
B) A reduction in the price of cattle feed.
C) An effective advertising campaign by pork producers.
D) A change in the incomes of beef consumers.
Answer: B
Q3) If market demand increases and market supply decreases,the change in equilibrium price is unpredictable without first knowing the exact magnitudes of the demand and supply changes.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) The two main characteristics of a public good are:
A) production at constant marginal cost and rising demand.
B) nonexcludability and production at rising marginal cost.
C) nonrivalry and nonexcludability.
D) nonrivalry and large negative externalities.
Q2) The trains of the Transcontinental Railway Company,when shipping goods,sometimes emit sparks that start fires along the tracks and damage the property of others.If Transcontinental does not pay for the damage it causes,what has occurred?
A) Positive externality.
B) Demand-side market failure.
C) Supply-side market failure.
D) All of these.
Q3) If the demand curve reflects consumers' full willingness to pay,and the supply curve reflects all costs of production,then which of the following is true?
A) The benefit surpluses shared between consumers and producers will be maximized.
B) The benefit surpluses received by consumers and producers will be equal.
C) There will be no consumer or producer surplus.
D) Consumer surplus will be maximized,and producer surplus will be minimized.
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) The trading of votes by elected officials to secure favorable outcomes is called:
A) splitting the difference.
B) social engineering.
C) logrolling.
D) grandstanding.
Q2) Government loan guarantees tend to socialize gains and privatize losses.
A)True
B)False
Q3) Suppose that Katie and Kelly each expects to receive $500 worth of marginal benefits from a proposed new recreation center,whereas Kerry expects to receive only $100 worth.If the proposed tax levied on each for the center would be $400,a majority vote will:
A) defeat this project and resources will be underallocated to it.
B) pass this project and resources will be efficiently allocated.
C) pass this project and resources will be underallocated to it.
D) pass this project and resources will be overallocated to it.
Q4) Changes in tax rates are a form of monetary policy.
A)True B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) Answer the question on the basis of the following demand schedule:
\(\begin{array}{l}
\begin{array}{ccc}
&\text { Quantity }\\
\underline{\text { Price} } & \underline{\text { Demanded}} \\
\$6 & 1 \\
5 & 2 \\
4 & 3 \\
3 & 4 \\
2 & 5 \\
1 & 6
\end{array}
\end{array}\) Refer to the data.The price elasticity of demand is relatively inelastic:
A) in the $6-$4 price range.
B) over the entire $6-$1 price range.
C) in the $3-$1 price range.
D) in the $6-$5 price range only.
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8
Chapter 7: Utility Maximization
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Sample Questions
Q1) The marginal rate of substitution measures the:
A) magnitude of the substitution effect.
B) total utility received by a consumer when equilibrium is achieved.
C) extra utility that a consumer derives from successive units of a product.
D) consumer's willingness to substitute one product for another so that total utility will remain constant.
Q2) Where total utility is at a maximum,marginal utility is:
A) negative.
B) positive and increasing.
C) zero.
D) positive but decreasing.
Q3) A consumer is maximizing her utility with a particular money income when:
A) the total utility derived from each product consumed is the same.
B) MU<sub>a</sub>/P<sub>a</sub> = MU<sub>b</sub>/P<sub>b</sub> = MU<sub>c</sub>/P<sub>c</sub> = ...= MU<sub>n</sub>/P<sub>n</sub>.
C) MU<sub>a</sub> = MU<sub>b</sub> = MU<sub>c</sub> = ...= MU<sub>n</sub>.
D) P<sub>a</sub> = P<sub>b</sub> = P<sub>c</sub> = ...= P<sub>n</sub>.
Q4) If marginal utility is diminishing,total utility must also be declining.
A)True
B)False
Page 9
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) Al regularly pays the full amount of taxes due,even though he could easily hide some of his income and reduce his tax burden,with no risk of getting caught.According to behavioral economics:
A) Al is not economically rational in his behavior.
B) fairness and other moral considerations cause Al to act contrary to his pure self-interest.
C) Al is more ethical than the majority of the population.
D) heuristics are causing Al to act honorably,not a conscious or deliberative thought process.
Q2) Because gun violence is portrayed frequently on television and in movies,people mistakenly assign too high of a probability that they will fall victim to gun violence,and too low of a probability to more likely but less publicized events.This phenomenon illustrates:
A) the effect of the availability heuristic.
B) that people suffer from hindsight bias.
C) that events are poorly framed by the media.
D) the self-serving bias at work.
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Page 10
Chapter 9: Businesses and the Cost of Production
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Sample Questions
Q1) Assume that in the short run a firm is producing 100 units of output,has average total costs of $200,and has average variable costs of $150.The firm's total fixed costs are:
A) $5,000.
B) $500.
C) $0.50.
D) $50.
Q2) Which of the following statements is correct?
A) Average total cost is the difference between average variable cost and average fixed cost.
B) Marginal cost measures the cost per unit of output associated with any level of production.
C) When marginal product rises,marginal cost must also rise.
D) Marginal cost is the price or cost of an extra variable input (for example,an additional worker or machine)divided by its marginal product.
Q3) A firm's economic profit is usually higher than its accounting profit.
A)True
B)False
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11
Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) The Ajax Manufacturing Company is selling in a purely competitive market.Its output is 100 units,which sell at $4 each.At this level of output total cost is $600,total fixed cost is $100,and marginal cost is $4.The firm should:
A) reduce output to about 80 units.
B) expand its production.
C) continue to produce 100 units.
D) produce zero units of output.
Q2) DASH Airlines is considering the addition of a flight from Red Cloud to David City.The total cost of the flight would be $1,100,of which $800 are fixed costs already incurred.Expected revenues from the flight are $600.DASH should:
A) not add this flight because only flights that cover their full costs are profitable.
B) not add this flight because it is not profitable at the margin.
C) add this flight because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.
D) not add this flight because total costs exceed total revenue.
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12
Chapter 11: Pure Competition in the Long Run
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Sample Questions
Q1) In a purely competitive industry:
A) there will be no economic profits in either the short run or the long run.
B) economic profits may persist in the long run if consumer demand is strong and stable.
C) there may be economic profits in the short run but not in the long run.
D) there may be economic profits in the long run but not in the short run.
Q2) Which of the following distinguishes the short run from the long run in pure competition?
A) Firms can enter and exit the market in the long run but not in the short run.
B) Firms attempt to maximize profits in the long run but not in the short run.
C) Firms use the MR = MC rule to maximize profits in the short run but not in the long run.
D) The quantity of labor hired can vary in the long run but not in the short run.
Q3) (Consider This)The average life expectancy of a U.S.business is approximately:
A) 2 years.
B) 5.5 years.
C) 10.2 years.
D) 22 years.
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Page 13
Chapter 12: Pure Monopoly
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Sample Questions
Q1) Economic profit in the long run is:
A) possible for both a pure monopoly and a pure competitor.
B) possible for a pure monopoly but not for a pure competitor.
C) impossible for both a pure monopolist and a pure competitor.
D) only possible when barriers to entry are nonexistent.
Q2) A pure monopolist should never produce in the:
A) elastic segment of its demand curve because it can increase total revenue and reduce total cost by lowering price.
B) inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price.
C) inelastic segment of its demand curve because it can always increase total revenue by more than it increases total cost by reducing price.
D) segment of its demand curve where the price elasticity coefficient is greater than one.
Q3) Which of the following is a characteristic of pure monopoly?
A) Close substitute products.
B) Barriers to entry.
C) The absence of market power.
D) "Price taking."
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Page 14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) In the long run,economic theory predicts that a monopolistically competitive firm will:
A) earn an economic profit.
B) realize all economies of scale.
C) equate price and marginal cost.
D) have excess production capacity.
Q2) Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million,$150 million,$100 million,and $50 million,respectively.We can conclude that:
A) price leadership exists in this industry.
B) the concentration ratio is more than 80 percent.
C) this industry is a differentiated oligopoly.
D) the firms in this industry face a kinked demand curve.
Q3) A Nash equilibrium can only occur in repeated games.
A)True
B)False
Q4) The U.S.steel industry is an example of homogeneous oligopoly.
A)True
B)False
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Page 15
Chapter 14: Technology RD and Efficiency
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Sample Questions
Q1) (Last Word)Many economists believe that the federal government:
A) spends far too much on basic scientific research,as this activity should be reserved for the private sector.
B) should spend more on basic scientific research because scientific knowledge is a public good with significant positive externalities.
C) should conduct all R&D activity in the economy,limiting firms' ability to gain monopoly power through product innovation.
D) should finance more consumption through Social Security and Medicare so that the increased demand encourages greater R&D.
Q2) In the inverted-U theory of R&D,which of the following industry concentration ratios would be most conducive to R&D (as a percentage of firm sales)?
A) 1 percent.
B) 10 percent.
C) 50 percent.
D) 70 percent.
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Chapter 15: The Demand for Resources
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Sample Questions
Q1) Which of the following will not shift the demand curve for labor?
A) The use of a larger stock of capital with the labor force.
B) A change in the wage rate.
C) An increase in the price of the product that labor is helping to produce.
D) The adoption of a more efficient method of combining labor and capital in the production process.
Q2) When the elasticity coefficient for resource demand is less than one,resource demand is:
A) inelastic.
B) elastic.
C) unit-elastic.
D) infinitely elastic.
Q3) Employers will hire more units of a resource if the:
A) price of the resource increases.
B) productivity of the resource increases.
C) price of the good being produced declines.
D) price of a complementary resource rises.
Q4) The MRP of labor curve is the firm's labor demand curve.
A)True
B)False
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Chapter 16: Wage Determination
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Sample Questions
Q1) Compensation paid in proportion to the number of units of personal output best describes:
A) royalties.
B) profit-sharing.
C) bonuses.
D) piece rates.
Q2) State right-to-work laws:
A) have been enacted by over one-half of the states in the nation.
B) make yellow dog contracts illegal.
C) allow for union shops while prohibiting closed shops.
D) make union and agency shops illegal.
Q3) Shirking refers to the behavior of workers who provide less-than-expected effort on the job.
A)True
B)False
Q4) (Consider This)The story about artist Pablo Picasso illustrates the point that:
A) the demand for labor is a derived demand.
B) geographical immobility impedes an efficient allocation of labor resources.
C) principal-agent problems can occur in unusual settings.
D) present skills reflect past accumulations of human capital.
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Chapter 17: Rent Interest and Profit
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Sample Questions
Q1) "Present value" refers to the:
A) value today of a specific amount of money to be received in the future.
B) current value of money held in a bank account.
C) amount to which some current amount of money will grow over time.
D) interest rate specified when a loan contract is signed.
Q2) Rent performs an incentive function,but no rationing function.
A)True
B)False
Q3) Unlike most demand curves,the demand curve for loanable funds is upsloping.
A)True
B)False
Q4) The demand for land is:
A) perfectly elastic.
B) perfectly inelastic.
C) upsloping.
D) downsloping.
Q5) Demand is the active and supply the passive determinant of land rent.
A)True
B)False
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Chapter 18: Natural Resource and Energy Economics
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Sample Questions
Q1) In fisheries management,a fishery is defined as:
A) an operation that breeds and releases fish and other marine animals into the wild.
B) a stock of fish or other marine animals that can be thought of as a logically distinct group.
C) a company that harvests fish or other marine animals.
D) a government organization that regulates the harvesting of fish and other marine animals.
Q2) Individual transferable quotas (ITQs):
A) promote efficiency and limit catches.
B) promote efficiency in production but still lead to overfishing.
C) limit catches but encourage production cost increases that are inefficient.
D) have failed to limit catches or promote efficiency.
Q3) Electricity generating plants with low fixed costs tend to have high operating costs.
A)True
B)False
Q4) Renewable natural resources can never be exhausted.
A)True
B)False
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Chapter 19: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) Using income as the tax base,which of the following best illustrates a regressive tax?
A) The federal inheritance tax.
B) A 7 percent general sales tax.
C) The corporate income tax.
D) The personal income tax.
Q2) Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic.The burden of a $2 excise tax on each tire will be:
A) borne by resource suppliers that provide the inputs for manufacturing tires.
B) shared about equally by buyers and sellers of tires.
C) borne primarily by buyers of tires.
D) borne primarily by sellers of tires.
Q3) Currently (2013)the marginal tax rates of the federal personal income tax:
A) are less than corresponding average tax rates.
B) rise from 5 to 35 percent.
C) fall from 20 to 10 percent.
D) rise from 10 to 39.6 percent.
Q4) About two-thirds of all federal spending is for national defense.
A)True
B)False
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Chapter 20: Antitrust Policy and Regulation
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Sample Questions
Q1) The largest efficiency gains from deregulation have occurred in the:
A) natural gas and cable television industries.
B) cable television and railroad industries.
C) communications and stock-brokering industries.
D) airlines,trucking,and railroad industries.
Q2) Price-fixing:
A) is prohibited by Section 7 of the Clayton Act.
B) is a per se violation of the antitrust laws.
C) may be either legal or illegal depending on whether or not it produces above-normal profits.
D) is illegal under terms of the Federal Trade Commission Act.
Q3) Critics of social regulation argue that it:
A) causes deflation.
B) violates the due process clause of the U.S.Constitution.
C) is a relatively greater burden for small firms than for large firms.
D) improves allocative efficiency.
Q4) The Consumer Product Safety Commission engages in social regulation,rather than industrial regulation.
A)True
B)False
Page 22
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Chapter 21: Agriculture: Economics and Policy
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Sample Questions
Q1) Currently (2009)farm employment is about:
A) 15.8 percent of total employment.
B) 9.4 percent of total employment.
C) 1.1 percent of total employment.
D) 1.8 percent of total employment.
Q2) (Consider This)Which of the following has been an effect of the U.S.government's ethanol program?
A) Prices for crops such as soybeans and sorghum have fallen dramatically.
B) Prices for beef,pork,and chicken have risen.
C) Water use has declined as corn is a less water-intensive crop.
D) All of these effects have resulted from the ethanol program.
Q3) Increases in incomes usually result in more than proportionate increases in the demand for agricultural products in a growing economy.
A)True
B)False
Q4) Farm share of U.S.GDP has:
A) declined from about 12 percent in 1950 to 1 percent today.
B) declined from about 12 percent in 1950 to 7 percent today.
C) declined from about 7 percent in 1950 to 1 percent today.
D) remained relatively stable over the past 50 years.
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