Survey of Economics Exam Solutions
Course Introduction
Survey of Economics provides a comprehensive overview of fundamental economic concepts, principles, and theories that shape individual, business, and government decision-making. The course introduces students to both microeconomics the study of markets, supply and demand, consumer behavior, and production and macroeconomics including national income, inflation, unemployment, monetary and fiscal policy, and international trade. Through real-world examples and analysis of current economic issues, students gain a foundational understanding of how economic forces impact society and guide public policy. This course is designed for students from all disciplines who seek a broad understanding of economic systems and their relevance in everyday life.
Recommended Textbook
ECON MICRO 5th Edition by William A. McEachern
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Unlike a service, a good:
A)is desirable.
B)uses resources to satisfy wants.
C)is physical and tangible.
D)is abundant and free.
E)is a resource.
Answer: C
Q2) Normative economic statements refer to what should be.
A)True
B)False
Answer: True
Q3) One might commit the fallacy of composition by concluding that:
A)statements that are true during prosperity are necessarily true during depression.
B)what is good for the individual is necessarily good for the group.
C)an event that precedes another is necessarily the cause of the latter.
D)intentions need not coincide with actions.
E)the composition of a complex product is not revealed by its exterior appearance.
Answer: B
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3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) A point outside the production possibilities frontier:
A)represents unemployment of resources.
B)represents full employment of resources.
C)would not represent an efficient combination of goods.
D)cannot be reached using the available technology.
E)is less desirable than one that lies inside the frontier.
Answer: D
Q2) The U.S. economy is best characterized as a: A)barter economy.
B)command economy.
C)mercantile economy.
D)mixed economy.
E)traditional economy.
Answer: D
Q3) The production possibilities frontier represents all desirable combinations of outputs.
A)True
B)False
Answer: False
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) The primary source of revenue for local governments is the property tax.
A)True
B)False
Answer: True
Q2) The difference between fiscal policy and monetary policy is that:
A)fiscal policy is a macroeconomic policy but monetary policy is a microeconomic policy.
B)monetary policy is a macroeconomic policy but fiscal policy is a microeconomic policy.
C)fiscal policy involves regulation of natural monopolies but monetary policy involves the provision of public goods.
D)monetary policy involves regulation of the money supply but fiscal policy involves government spending and taxing.
E)fiscal policy involves the promotion of competition but monetary policy involves collecting money to pay for taxes.
Answer: D
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) Which of the following is most likely to shift the supply curve for a product to the right?
A)An increase in the price of a resource used in the good's production
B)The expectation of a higher price in the near future
C)An increase in the price of the product
D)A decrease in the price of an alternative good
E)An improvement in the technology for producing the good
Q2) The income effect refers to the impact of a change in:
A)money income of consumers on the price of a good.
B)the relative price of a good on the demand for other goods.
C)the price of a good on a consumer's real income.
D)the price of a substitute good on a consumer's budget.
E)money income of consumers on the demand for a good.
Q3) For a given upward-sloping supply curve, a decrease in demand will lead to a(n):
A)increase in supply.
B)decrease in supply.
C)increase in quantity supplied.
D)increase in equilibrium price.
E)decrease in equilibrium price.
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Page 6
Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) The supply of a product will be more elastic if:
A)the good has few substitutes.
B)the time the producer has to adjust to a price change is long.
C)the time frame for adjusting to price changes is short.
D)demand is elastic.
E)demand is inelastic.
Q2) If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the value of the price elasticity of demand for Pepsi-Cola is:
A) 0.5.
B) 0.25.
C) 1.
D) 3.
E) 2.
Q3) The ability of increasing quantity supplied in response to a higher price is identical across industries.
A)True
B)False
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7
Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) Jerry consumes three hamburgers at McDonald's. He figures out that the last hamburger he ate was just worth the price he paid for it. If the price of a hamburger is $1,
A)he has no consumer surplus
B)he would have a consumer surplus if he eats one more hamburger
C)he has a consumer surplus on the first hamburger
D)he has a consumer surplus on the first two hamburgers
E)he has a consumer surplus on the third hamburger alone
Q2) If the amount paid for a good by consumers reflected the value of the total benefits they receive from consuming it:
A)the value of the total utility derived from consumption of the good exceeds the total spending on the good.
B)the value of consumer surplus would be zero.
C)the marginal valuation of the good would be irrational.
D)the value of total utility derived from consumption of the good would be equal to zero.
E)the value of marginal utility of an additional unit of the good would be negative.
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Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) A firm's long-run average cost curve is also called its _____.
A)profit curve
B)explicit cost curve
C)opportunity cost curve
D)production curve
E)planning curve
Q2) Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should:
A)return to his old job because his economic profit is negative.
B)return to his old job because his economic profit is smaller than his accounting profit.
C)return to his old job because his economic profit is less than his old salary.
D)stay with his new firm because his economic profit is positive.
E)stay with his new firm because accounting profit is positive.
Q3) If all the savings of an owner are invested in his consulting company, an increase in the interest rate increases his implicit costs.
A)True
B)False
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9
Chapter 8: Perfect Competition
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Sample Questions
Q1) Suppose each firm's long-run average cost of production does not vary with the entry of new firms in a perfectly competitive industry and a long-run adjustment results in a smaller industry output but leaves price unchanged. Which of the following is likely to be true in this case?
A)The market demand curve did not shift.
B)The market demand curve shifted to the left, and the market supply curve shifted to the right.
C)The market supply curve shifted to the left, and the market demand curve shifted to the right.
D)Both market supply and demand increased, but supply increased more than demand.
E)The industry is a constant-cost industry.
Q2) The long-run supply curve for a constant-cost perfectly competitive industry is
A)a ray from the origin at a 45-degree angle
B)perfectly inelastic
C)relatively inelastic
D)perfectly elastic
E)downward sloping
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Page 10
Chapter 9: Monopoly
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Sample Questions
Q1) Total deadweight loss in society is reduced through rent seeking by monopolists.
A)True
B)False
Q2) A monopolist that fails to recover a short-run loss in the long run generally leaves the market.
A)True
B)False
Q3) Unlike perfectly competitive firms, monopolists:
A)earn positive short-run economic profit even if price is less than average variable cost at all rates of output.
B)sell any quantity of output at any price they choose.
C)earn long-run economic profits.
D)reduce the sales of firms in other industries through advertising.
E)face a perfectly elastic demand curve.
Q4) A monopolist that engages in perfect price discrimination:
A)divides all buyers into two mutually exclusive groups.
B)refuses to sell its output to consumers of rival brands.
C)charges the same price for every unit sold.
D)charges a different price for every unit sold.
E)charges a high price to bulk consumers of its product.
Page 11
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Excess capacity is defined as the difference between a firm's maximum possible output and its actual output.
A)True
B)False
Q2) Which of the following characteristics do firms in perfect competition have in common with firms in monopolistic competition?
A)Firms in both markets are price takers.
B)Firms in both markets produce homogeneous products.
C)Firms in both markets face competition from new entrants.
D)Firms in both markets face a horizontal demand curve.
E)Firms in both markets advertise their products.
Q3) Compared to regular grocery stores, convenience stores have:
A)higher prices and a more limited selection of goods.
B)higher prices and a greater selection of goods.
C)lower prices and a more limited selection of goods.
D)lower prices and a greater selection of goods.
E)equal prices and an equal selection of goods.
Q4) Oligopolists often sacrifice economies of scale as they expand product variety.
A)True
B)False
Page 12
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Chapter 11: Resource Markets
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Sample Questions
Q1) The difference between the average earnings of eye surgeons and those of janitors is:
A)an example of a temporary differential caused by a lack of resource mobility.
B)an example of a permanent differential caused by differences in the time and money involved in developing the necessary skills.
C)an example of a permanent differential caused by differences in nonmonetary aspects of the job.
D)a temporary difference that will be eliminated through the reallocation of resources to different uses.
E)an example of a permanent differential caused by a difference in the inherent quality of the resource.
Q2) A temporary price differential in resource markets is:
A)caused by inherent differences in nonmonetary aspects of a job.
B)caused by a failure of firms to maximize profits.
C)eliminated by resources moving from lower-valued to higher-valued uses.
D)caused by governments increasing the minimum wages of workers.
E)eliminated when resources earn an excess of their opportunity costs.
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Page 13
Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) An increase in the wage rate will decrease the demand for labor.
A)True
B)False
Q2) People who earn higher market wages, other things constant, will:
A)provide more labor to nonmarket work.
B)be more inclined to supply their labor to market work than to nonmarket work.
C)be more inclined to supply their labor to nonmarket work than to market work.
D)provide more labor to nonmarket work even if the market can provide the services more cheaply.
E)provide less labor to market work and more labor to nonmarket work.
Q3) Which of the following could not contribute to differences in wage rates across labor markets?
A)Differences in training and education requirements
B)Discrimination in the job market
C)Differences in risks involved in the job
D)Problems of labor mobility among various uses
E)Distribution of a newspaper with classifieds
Q4) Most labor negotiations in the United States end without a strike.
A)True
B)False
Page 14
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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Sample Questions
Q1) The market value of a bond is _____.
A)directly related to the rate of interest on the bond
B)inversely related to the rate of interest on the bond
C)not related to the rate of interest on the bond
D)directly related to the maturity date of the bond
E)inversely related to the maturity date of the bond
Q2) Impatience and uncertainty are explanations for a positive rate of time preference.
A)True
B)False
Q3) The administration costs of a loan, as a proportion of the total cost of the loan, typically:
A)decrease as the size of the loan increases, lowering the interest rate.
B)decrease as the size of the loan increases, increasing the interest rate.
C)increase as the size of the loan increases, lowering the interest rate.
D)increase as the size of the loan increases, increasing the interest rate.
E)increase as the size of the loan increases, leaving the interest rate unchanged.
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Page 15
Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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152 Flashcards
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Sample Questions
Q1) When a firm is operating at its minimum efficient scale, its:
A)short-run average total cost of production is minimized.
B)long-run marginal cost of production is minimized.
C)long-run average cost of production is minimized.
D)marginal revenue is less than the marginal cost.
E)total revenue is just equal to the total cost.
Q2) If a firm experiences economies of scope, _____.
A)its average cost falls as output increases
B)its average cost rises as output increases
C)its average total cost falls when it produces more than one kind of product
D)it gains larger profits through vertical integration
E)its average total cost rises as it produces more than one kind of product
Q3) Which of the following is true of traditional economics?
A)It questions the assumptions of utility and demand.
B)It questions the assumptions of unbounded rationality and will power.
C)It borrows insights from philosophy to explain certain economic decisions.
D)It assumes that people make irrational choices and end up with bad outcomes.
E)It assumes that people act rationally to maximize their overall well-being.
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Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) If a firm with a 10 percent market share merges with a firm with a 15 percent market share and the other firms have market shares of 40 percent, 15 percent, 10 percent, and 10 percent, respectively, the Herfindahl index will _____.
A)rise by 100
B)rise by 300
C)fall by 200
D)fall by 250
E)rise by 25
Q2) According to _____, competition in the U.S. economy increased between 1958 and 2000 due to a reduction in government intervention.
A)Kenneth Arrow
B)George Akerlof
C)Sir William Ashley
D)Thomas Attwood
E)William Shepherd
Q3) Antitrust policy has no relationship with socially desirable market performance.
A)True
B)False
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Budget maximization by government bureaus results in a budget equal to that desired by the median voter.
A)True
B)False
Q2) In order to dispose of the nuclear waste created by power plants around the country, the government buys land in Glowing Gulch, Idaho. Residents of that town organize to block construction of the nuclear waste facility. Which of the following statements is false?
A)The benefits of the nuclear waste facility are widespread.
B)The costs of the nuclear waste facility are concentrated.
C)The citizens of Glowing Gulch are a special-interest group.
D)Consumers of the power generated at the nuclear plants are not likely to organize to support construction of the nuclear waste facility.
E)The citizens of Glowing Gulch are equally concerned about all public issues.
Q3) A firm wishing to acquire a monopoly position would be willing to spend up to its anticipated monopoly profit in rent-seeking activities.
A)True
B)False
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Chapter 17: Externalities and the Environment
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Sample Questions
Q1) The optimal air quality is determined where the marginal social cost of improving air quality is equal to the marginal social benefit from cleaner air.
A)True
B)False
Q2) Private property rights are easily assigned to open-access resources.
A)True
B)False
Q3) The common-pool problem arises:
A)when goods are not rival in consumption.
B)in the presence of asymmetric information.
C)when property rights are well defined.
D)when exhaustible resources are overused.
E)when renewable resources are overused.
Q4) Which of the following provides a positive externality?
A)Smog
B)Inoculating children against measles
C)Smoking in public places
D)Littering roads
E)Listening to loud music
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Chapter 18: Poverty and Redistribution
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Sample Questions
Q1) Medicare is a(n):
A)social insurance program that provides health insurance only to people who suffer from work-related injuries or disabilities.
B)income assistance program that provides cash benefits to the elderly and the poor.
C)social insurance program that provides health insurance to people aged 65 years and above, regardless of income.
D)income assistance program that supplements the wages of the working poor.
E)social insurance program that provides health insurance to the poor depending on their income level.
Q2) Which of the following is true of Medicaid?
A)Medicaid beneficiaries do not receive Medicare.
B)States do not receive any grants from the federal government to cover their Medicaid budget.
C)The proportion of poor people covered by Medicaid is determined by the federal government.
D)The proportion of poor people covered by Medicaid varies across states.
E)Medicaid has been replaced by Medicare in recent years.
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20
Chapter 19: International Trade
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Sample Questions
Q1) If wage rates are lower in Mexico than in Germany, labor costs per unit of output can still be higher in Mexico.
A)True
B)False
Q2) Differences in tastes among nations:
A)make gains from trade possible even in the absence of differences in resource endowments.
B)make gains from trade possible only when there are differences in resource endowments.
C)negate any potential gains from trade.
D)are caused by differences in resource endowments.
E)occur only among countries whose people are of different religions.
Q3) If production is subject to economies of scale, countries can gain from trade if each nation specializes in the production of a good.
A)True
B)False
Q4) Japan is generally considered a closed economy.
A)True
B)False
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Chapter 20: International Finance
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Sample Questions
Q1) Which of the following is not true about the U.S. trade balance since 1979?
A)The balance of trade has been in deficit.
B)During recessions the balance has usually been flat.
C)The balance of trade has been in surplus.
D)When the economy expanded, the demand for imports increased.
E)When the economy expanded, the trade balance worsened.
Q2) If Europe and the United States were the only two regions in the world, then U.S. government would buy euros to improve the U.S. balance of payments.
A)True
B)False
Q3) The demand curve for foreign exchange:
A)slopes downward.
B)slopes upward.
C)is horizontal, because no individual country can influence the price of foreign exchange.
D)is vertical, because no individual country can influence the price of foreign exchange.
E)may slope downward or upward depending on the volume of imports and exports of the trading countries.
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Chapter 21: Economic Development
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Sample Questions
Q1) A trend in developing countries is that:
A)the birth rate during a typical woman's lifetime has increased from three to six children.
B)attitudes toward family size are changing.
C)fertility rates increase when women have employment opportunities outside the home.
D)women earn less as they become better educated.
E)women tend to have fewer children if they are less educated.
Q2) Which of the following regions has the lowest life expectancy at birth?
A)Continental European countries
B)The Baltic countries
C)The Nordic countries
D)Sub-Saharan African countries
E)Middle Eastern countries
Q3) In 2014, high-income economies with only about one-fifth of the world's population produced more than half of the world's output.
A)True
B)False
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