Introductory Economics
Final Test Solutions
Course Introduction
Introductory Economics provides students with a foundational understanding of the core principles of microeconomics and macroeconomics. The course explores key concepts such as supply and demand, market structures, the role of government in the economy, economic growth, inflation, unemployment, and international trade. Emphasis is placed on applying economic reasoning to real-world situations, developing analytical skills, and understanding the impact of economic policies on individuals, businesses, and society as a whole. This course serves as a basis for further study in economics and related disciplines.
Recommended Textbook
Fundamentals of Economics 6th Edition by William Boyes
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18 Chapters
2262 Verified Questions
2262 Flashcards
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Page 2
Chapter 1: Economics and the World Around You
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) According to Scenario 1.1, Brian has a comparative advantage over Alan in the production of
A) softballs.
B) both softballs and baseballs.
C) neither softballs nor baseballs.
D) baseballs.
E) softballs if he makes no more than 2 an hour.
Answer: D
Q2) The opportunity cost of studying economics tonight at the library does not include
A) the good time you could be having by going out with your friends.
B) the time you could be spending studying for your history class.
C) your lost sleep.
D) the time you could be spending listening to music or watching television.
E) the higher grade you might earn on the next economics test.
Answer: E
Q3) When you work to support your lifestyle, you are making a tradeoff.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Markets and the Market Process
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) An improvement in entrepreneurial skills applied to the production of a particular product would cause
A) the supply curve for that product to shift to the right.
B) a movement to the right along the supply curve for that product.
C) a movement to the left along the supply curve for that product.
D) an increase in the quantity supplied of that product.
E) a decrease in the quantity supplied of that product.
Answer: A
Q2) This month Fritter Firm finds that it has been able to sell 200 fritters at a price of $1 per fritter. Last month, the firm was able to sell only 150 fritters at $1 per fritter. What most likely happened over the month?
A) Demand increased.
B) Supply increased.
C) Supply decreased.
D) Quantity supplied decreased.
E) Quantity demanded increased.
Answer: A
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Chapter 3: Applications of Demand and Supply
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Sample Questions
Q1) Assume that the market described by the demand and supply curves in Figure 3.6 is originally in equilibrium. What is the most likely consequence of a government-imposed price ceiling at $10 per unit?
A) Supply will decrease.
B) Demand will increase.
C) Quantity supplied will decrease.
D) There will be a surplus of the good.
E) There will be no consequence at all.
Answer: C
Q2) "Efficiency" means
A) a producer is using the very best production techniques
B) everyone pays his fair share
C) those who cannot pay will not get any
D) the consumer is always right
E) All of these.
Answer: A
Q3) It is very difficult for a firm to sustain its success over many years.
A)True
B)False
Answer: True
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Chapter 4: The Firm and the Consumer
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122 Flashcards
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Sample Questions
Q1) Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 4 percent, the quantity demanded of bread decreases to 45 loaves, which means
A) demand is elastic.
B) demand is unit elastic.
C) the price elasticity of demand is equal to 0.8.
D) demand is inelastic.
E) consumers are very unresponsive to a price change.
Q2) Because there are few substitutes for insulin, we expect the price elasticity of demand for insulin to be fairly elastic.
A)True
B)False
Q3) In Figure 4.2, which demand curve is least likely to represent demand for high blood pressure medicine?
A) A
B) B
C) C
D) D
E) E
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Chapter 5: Costs and Profit Maximization
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $15 per unit and the firm produces at the profit-maximizing level, the firm will earn an economic profit equal to A) zero.
B) its normal profit.
C) more than zero but less than $500.
D) $500.
E) more than $500.
Q2) In Table 5.3, when total output is 8 units, the average variable cost is
A) $53.75.
B) $41.25.
C) $15.
D) $3,440.
E) impossible to determine from the information given.
Q3) To maximize profits, a firm should produce the output level where total revenue equals total cost.
A)True
B)False
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Page 7
Chapter 6: Competition
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152 Flashcards
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Sample Questions
Q1) Free entry into a market will result in
A) profits in the long run.
B) zero economic profits in the long run.
C) uncontrolled competition requiring government intervention.
D) economic profits from interdependence.
E) none of these.
Q2) More competitors will increase the market supply, thus
A) creating larger barriers to entry.
B) making demand more elastic.
C) contributing to creative destruction.
D) resulting in lower prices.
E) causing demand to increase.
Q3) Only the governments in developing countries create oligopolies.
A)True
B)False
Q4) As competitors enter and provide substitutes, competition increases.
A)True
B)False
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Page 8
Chapter 7: Business, Society, and the Government
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) If a consumer can gain extra satisfaction, to the extent of receiving more satisfaction than he or she is paying for, the consumer is obtaining
A) a good deal.
B) negative utility.
C) consumer surplus.
D) the demand factor.
E) consumer sovereignty.
Q2) A primary cause of inefficiency in government is that A) markets interfere with governments.
B) the gains from government projects are often concentrated, while the costs are dispersed among all taxpayers.
C) government employees tend to be lazier than private-sector employees.
D) antitrust is applied to government policies as well as market situations.
E) all of these are true.
Q3) Selling products below cost to drive competitors out of a market is called predatory lending.
A)True
B)False
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Chapter 8: Government Intervention Versus Free Markets
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) The resulting spill from the explosion of the British Petroleum (BP) oil well in the Gulf of Mexico in April 2010 was due, in part, to government intervention in the market that forced BP to drill 50 miles offshore and 1 mile below the ocean's surface.
A)True
B)False
Q2) The fact that world leaders come to the United States when they need medical care demonstrates that
A) the world leaders are rich.
B) the world leaders are able to obtain health care from a government-provided system.
C) the world leaders also receive Medicare.
D) the market system must provide the best medical care.
E) the United States is the richest nation in the world and thus has the best hospitals.
Q3) The employer-based health care system is very efficient.
A)True
B)False
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10
Chapter 9: An Overview of the National and International Economies
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Since 1970, federal spending has been growing more rapidly than state and local spending.
A)True
B)False
Q2) Which of the following statements is true regarding the term investment as it is used in economics?
A) Investment spending is always greater than consumption.
B) Investment can both rise and fall at different times.
C) Investment is largely unimportant in determining the economic health of a country.
D) Investment includes the purchase of stocks.
E) Investment includes the purchase of bonds.
Q3) The circular flow model is built on the idea of equality between national income and national expenditures.
A)True
B)False
Q4) Fiscal policy is best defined as the manipulation of the balance of payments.
A)True
B)False
Page 11
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Chapter 10: Macroeconomic Measures
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111 Flashcards
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Sample Questions
Q1) The U.S. is the ____ nation in the world.
A) largest creditor
B) largest debtor
C) smallest creditor
D) smallest debtor
E) largest
Q2) Which of the following is not a form of foreign exchange?
A) Foreign bank notes
B) Bank deposits denominated in foreign currency
C) Domestic currency
D) Checking accounts denominated in foreign currency
E) None - all of these are a form of foreign exchange
Q3) A net surplus in a country's current account indicates that the country is a net borrower from the rest of the world.
A)True
B)False
Q4) National income (NI) is net national product (NNP) plus indirect business taxes.
A)True
B)False
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Chapter 11: Unemployment, Inflation, and Business Cycles
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Which of the following is not one of the four most common forms of unemployment defined by economists?
A) Seasonal unemployment
B) Static unemployment
C) Cyclical unemployment
D) Frictional unemployment
E) Structural unemployment
Q2) Economists measure the cost of unemployment in terms of lost wages.
A)True
B)False
Q3) There will be ____ pressure on wages and prices when the unemployment rate ____ the non-accelerating-inflation rate of unemployment (NAIRU).
A) a downward; fell below
B) a downward; rise above
C) an upward; fell below
D) an upward; rise above
E) no; fell below
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13
Chapter 12: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) Which of the following factors least affects net exports?
A) Foreign inflation rates
B) Foreign bank systems
C) Foreign international trade tariffs
D) Foreign income
E) Change in foreign tastes
Q2) New production technology discourages investment spending because no firm wants to invest in technologies that will quickly become obsolete.
A)True
B)False
Q3) All of the following would cause an increase in the aggregate quantity demanded except:
A) real value of assets and wealth rises.
B) increase in purchasing power of money.
C) interest rates fall.
D) higher domestic inflation, relative to other countries.
E) none-all of these would cause an increase in aggregate quantity demanded.
Q4) Demand-pull inflation occurs when there is a decrease in aggregate supply.
A)True
B)False
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Chapter 13: Fiscal Policy
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) If higher taxes affect worker productivity, then the expansionary effect of balanced-budget fiscal policy changes is increased.
A)True
B)False
Q2) With a vertical aggregate supply curve in place, an increase in government spending acts to raise both real GDP and the general price level.
A)True
B)False
Q3) What is the main reason that public-sector investment spending plays a larger role in developing countries than in industrial countries?
A) Most governments in developing countries are Communist.
B) Businesses of developing countries invest all their money abroad.
C) Hyperinflation prevents any private investment in developing countries.
D) There is a larger percentage of state-owned enterprises in developing countries.
E) Most developing countries suffer from large government deficits, which cause complete crowding out of private investment.
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Chapter 14: Money and Banking
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Exchanging one good for another without the use of money constitutes
A) liquidity.
B) token exchange.
C) deferred payment.
D) barter.
E) illegal activity.
Q2) The broadest measure of the U.S. money stock is
A) M1.
B) the total of all outstanding bank loans.
C) M2.
D) currency and coins in circulation.
E) commodity money.
Q3) Which of the following is not an asset of a depository institution?
A) Cash
B) Bank loans
C) Securities
D) Reserves
E) Savings deposits
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Chapter 15: Monetary Policy
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125 Flashcards
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Sample Questions
Q1) An excess supply of money occurs when people
A) hold more money than they would like and attempt to buy bonds.
B) hold more money than they would like and attempt to sell bonds.
C) hold less money than they would like and attempt to buy bonds.
D) hold less money than they would like and attempt to sell bonds.
E) are unwilling to hold any money.
Q2) For a bank to make further loans to the public, its excess reserves must be greater than its legal reserves.
A)True
B)False
Q3) Which of the following is not a correct statement about the Federal Reserve banks?
A) They provide the economy with paper currency.
B) They act as a fiscal agent to the federal government.
C) They control the banking policies of commercial banks.
D) They set interest rates on commercial banks' loans.
E) They hold reserve deposits of member banks.
Q4) The Fed is much less centralized than its creators intended.
A)True
B)False
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Chapter 16: Macroeconomic Policy, Business Cycles, and Growth
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) Which of the following does not shift the aggregate supply curve to the right?
A) A very large crop of grain
B) A higher average level of education
C) Lower prices of natural resources
D) Freezing weather that destroys the Florida citrus crop
E) Lower OPEC prices
Q2) U.S. economic data from 1955 to 2009 give evidence of
A) a positive relationship between the unemployment rate and inflation.
B) a negative relationship between the unemployment rate and inflation.
C) a constant rate of unemployment with changing rates of inflation.
D) a constant rate of inflation with changing rates of unemployment.
E) no particular relationship between the unemployment rate and inflation.
Q3) The short-run effect of unexpected disinflation is rising unemployment.
A)True
B)False
Q4) Adaptive expectations and rational expectations differ only in the fact that adaptive expectations suggest agents are irrational.
A)True
B)False
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Chapter 17: Issues in International Trade and Finance
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Sample Questions
Q1) The principal consequences of protection are higher prices for the protected industry's output, higher profits for owners, and higher wages for workers.
A)True
B)False
Q2) Which of the following emphasizes that production differences among countries are due to the availability of skilled and unskilled labor?
A) The Ricardian model
B) Preferences
C) The product life cycle theory
D) The factor abundance theory
E) The human skills approach
Q3) If manufacturers in China can acquire the same production technology used in the United States but use much cheaper labor, they have an absolute advantage over U.S. manufacturers.
A)True
B)False
Q4) Quotas are limits on the quantity or value of goods imported and exported.
A)True
B)False
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Chapter 18: Globalization
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Sample Questions
Q1) Countries not engaged in globalization tend to be mired in low-growth poverty.
A)True
B)False
Q2) The primary international reserve asset is gold.
A)True
B)False
Q3) During the 1970s, 1980s, and 1990s, economic growth in the newly industrialized countries ____, while economic growth in rich countries ____.
A) stagnated; expanded
B) increased; declined
C) decreased; increased
D) remained constant; declined
E) remained constant; increased
Q4) Critics of globalization suggest globalization can cause harmful labor practices if
A) multinational corporations locate where workers' rights are ignored.
B) on-the-job safety is ignored.
C) child and prison labor is exploited.
D) low-cost labor replaces workers in industrialized countries.
E) all of these occur.
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