Survey of Economics Practice Questions
Course Introduction
Survey of Economics introduces students to the fundamental principles of both microeconomics and macroeconomics. The course covers topics such as supply and demand, market structures, consumer behavior, government intervention, national income, monetary and fiscal policy, and international trade. Emphasis is placed on understanding economic decision-making and how economic issues impact individuals, businesses, and society. Through real-world examples and current events, students gain practical insights into how economic concepts apply to everyday life and global challenges.
Recommended Textbook
Economics for Today 5th Edition by Allan Layton
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) The central question in economics is how to:
A) deal with the problem of scarcity.
B) change government economic policy.
C) change people's wants to match their needs.
D) manage money and become wealthy.
Answer: A
Q2) An economic model is:
A) focused on all variables in the economy.
B) based on unrealistic assumptions.
C) a pursuit of parsimony.
D) designed to highlight minor details of the reality.
Answer: C
Q3) The perpetual state of insufficiency of resources to satisfy people's unlimited wants is:
A) not a problem in developed countries.
B) a contradiction that cannot be solved.
C) completely unrealistic.
D) present in the modern economies but not in the past.
E) the definition of scarcity.
Answer: E
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Chapter 2: Applying Graphs to Economics
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Sample Questions
Q1) In Exhibit A1.1, as X increases along the horizontal axis, corresponding to points A-B on the line, the Y values increase. The relationship between the X and Y variables is:
A) positive.
B) inverse.
C) independent.
D) variable.
Answer: A
Q2) Which of the following pairs is the most likely to exhibit an inverse relationship?
A) The amount of time you spend studying and your final marks.
B) Waiter's tips and his/her service.
C) The annual income and demand for overseas travel.
D) People's annual income and their expenditure on second-hand clothes.
Answer: D
Q3) A horizontal line indicates an independent relationship between two variables.
A)True
B)False
Answer: True
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Chapter 3: Production Possibilities and Opportunity Cost
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Sample Questions
Q1) Which of the following would be most likely to cause the production possibilities frontier for trucks and movies to shift outward?
A) A choice of more trucks and less movies.
B) A choice of more movies and fewer trucks.
C) A reduction in the labour force.
D) An increase in the quantity of resources.
Answer: D
Q2) Unattainable combination Z shown in Exhibit 2.7:
A) may be achieved by investing in research and development.
B) can be achieved by using more of the existing resources.
C) will never be achieved.
D) can easily be achieved by having full employment .
Answer: A
Q3) An increase in current consumption is necessary for economic growth.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Market Demand and Supply
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Sample Questions
Q1) A supply schedule shows the relationship between:
A) demand and supply.
B) supply and income.
C) price and income.
D) quantity supplied and price.
Q2) If the price is lower that the equilibrium price, which of the following will occur?
A) The price will remain low.
B) The price will reduce even more.
C) The price will raise to the equilibrium price.
D) Demand will shift.
Q3) In Exhibit 3.3, a shift in the supply curve from S<sub>1</sub> to S<sub>2</sub> is possible because of:
A) subsidies to consumers.
B) higher taxes imposed on producers.
C) changes in consumer preferences.
D) technological innovation.
Q4) A shortage occurs when a good is in great demand.
A)True
B)False
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Chapter 5: Markets in Action
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Sample Questions
Q1) When there is market failure due to a negative externality:
A) there are no ways of correcting it.
B) setting the price of the good equals to its marginal social cost will solve it.
C) the free market produces output at a too high price.
D) externalities have been taken into account.
Q2) In 2002 a community in the United States passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (e.g. no couches on the porch). The law represents a conflict between _____ and _____.
A) the rich; the poor
B) third parties; market participants
C) victims; criminals
D) public goods; private goods
Q3) A minimum wage results in:
A) market equilibrium.
B) increased demand for workers.
C) unemployment if it is set above the market clearing wage.
D) a shortage of workers.
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Chapter 6: Elasticity of Demand and Supply
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Sample Questions
Q1) If the income elasticity for a particular good is 1.8, we would expect to see more of that good:
A) consumed in low-income communities.
B) consumed by people on higher incomes.
C) on supermarket shelves.
D) consumed equally by all citizens.
Q2) Using the midpoint formula, what would be the price elasticity of demand for a gallbladder operation if the number of operations fell from 7000 to 4000 per week after its price increased from $6000 to $15 000?
A) 0.254.
B) 0.636.
C) 0.801.
D) 1.25.
Q3) If demand price elasticity measures 2, this implies that consumers would:
A) buy twice as much of the product if the price drops 10 per cent.
B) require a 2 per cent drop in price to increase their purchases by 1 per cent.
C) buy 2 per cent more of the product in response to a 1 per cent drop in price.
D) require at least a $2 increase in price before showing any response to the price increase.
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Page 8
Chapter 7: Production Costs
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Sample Questions
Q1) As shown in Exhibit 6.6, the average total cost of producing five units is:
A) $0.
B) $27.
C) $50.
D) $100.
Q2) The law of diminishing returns applies to which of the following segments of the marginal product of labour curve?
A) The entire curve.
B) The downward-sloping segment only.
C) The upward-sloping segment only.
D) The point where labour input is zero.
Q3) If the minimum points of all the possible short-run average total cost curves become successively lower as quantity of output increases, then:
A) the firm should try to produce less output.
B) total fixed costs are constant along the LRAC curve.
C) there are economies of scale.
D) the firm is probably having significant management problems.
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Chapter 8: Perfect Competition
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Sample Questions
Q1) A perfectly competitive industry's short-run market supply curve is derived from:
A) horizontal summation of the short-run supply curves of major firms in the industry.
B) horizontal summation of the long-run supply curves of all firms in the industry.
C) vertical summation of the short-run supply curves of all firms in the industry.
D) horizontal summation of the short-run supply curves of all firms in the industry.
Q2) The market curve derived for the perfectly competitive market is based on the following assumptions:
A) input prices remain unchanged as output expands.
B) output prices remain unchanged as output expands.
C) input prices reduce as output expands.
D) input prices increase as output expands.
Q3) The long-run supply curve in a perfectly competitive increasing-cost industry is upward-sloping.
A)True
B)False
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Chapter 9: Monopoly
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Sample Questions
Q1) In order for a monopolist to earn a positive economic profit in short-run equilibrium, price must exceed average total cost.
A)True
B)False
Q2) There is only one hairdressing salon on campus. That means it is possibly a/an:
A) oligopoly.
B) monopolistically competitive firm.
C) monopoly.
D) competitive firm.
Q3) A monopolist can engage in price discrimination:
A) if it faces a perfectly elastic demand curve.
B) if it is able to buy a good at a low price and resell it at a higher price.
C) if it is a price maker, can segment the market and prevent customers from reselling.
D) if it faces a perfectly inelastic demand curve.
Q4) Both a perfectly competitive firm and a monopolist:
A) always earn an economic profit.
B) maximise profit by setting marginal cost equal to marginal revenue.
C) maximise profit by setting marginal cost equal to average total cost.
D) are price takers.
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) It is difficult to talk conclusively about the allocation of resources in an oligopoly because:
A) entry is impossible in oligopolies.
B) both price and output can be higher in oligopolies than in perfect competition.
C) the level of competition varies greatly in oligopolistic markets.
D) non-price competition is rare in an oligopoly.
Q2) In the long run, the economic profits of Hoot's Chicken'n'Ribs, a monopolistic competitor, are:
A) not eliminated, because competition is not perfect.
B) not eliminated, because the demand curve slopes downward.
C) eliminated due to firms entering the industry.
D) eliminated due to firms leaving the industry.
Q3) When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:
A) mutual interdependence.
B) price leadership.
C) collusion.
D) monopolistic competition.
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Chapter 11: Policy Issues: Housing Affordability and Climate Change
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Sample Questions
Q1) Subsidisation of clean energy production is often achieved through a/an:
A) Emissions Trading Scheme (ETS).
B) Green Energy Certificates (GECs) scheme.
C) Renewable Energy Certificates (RECs) scheme.
D) Clean Energy Certificates (CESs) scheme.
Q2) Assume that the private supply is 'Supply 1' and the supply including carbon tax is 'Supply 2' (Exhibit 10.2). What is the level of carbon tax imposed?
A) $10.
B) $30.
C) $40.
D) $20.
Q3) Chapter 10 of the textbook refers to 'ETS' as:
A) Enterprise Technology Services
B) Energy Transfer System.
C) Edmonton Transit System.
D) Emissions Trading Scheme.
Q4) Regulation is the best solution to climate change issues.
A)True
B)False
Page 13
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Chapter 12: Measuring the Size of the Economy
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Sample Questions
Q1) The difference between gross investment and net investment is the stock of inventory.
A)True
B)False
Q2) GDP figures tend to understate the quantity of goods and services available because:
A) exports are subtracted from GDP but imports are not added back in.
B) many items are counted twice or more in intermediate stages of production.
C) more women are entering the labour force.
D) the changes in quality of products are not included in GDP.
Q3) New residential housing is counted in GDP as a/an:
A) durable consumption good.
B) household durable good.
C) investment good.
D) inventory expansion.
Q4) Which of the following transactions is not included in GDP?
A) A drug addict buys cough medicine.
B) A drug addict spends two months in a drug rehabilitation centre.
C) A doctor treats a patient for drug addiction.
D) Someone sells drugs in a black market.
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Chapter 13: Business Cycles and Economic Growth
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Sample Questions
Q1) The GDP gap is the difference between:
A) full-employment real GDP and nominal GDP.
B) the full employment rate and real GDP chain price index.
C) full-employment real GDP and actual real GDP.
D) seasonal unemployment and nominal GDP.
Q2) A temporary monopoly right through the patent:
A) is a waste of resources.
B) should not be granted.
C) can be in society's longer term interest.
D) is a luxury that only advantageous people enjoy.
Q3) The endogenous growth model suggests that technological progress in an economy:
A) may lead to further improvements in technology.
B) occurs randomly.
C) is not as important as suggested in the Solow growth model.
D) depends crucially on the level of consumption.
Q4) The phase of the business cycle that follows a recession is known as the: A) peak.
B) recession.
C) recovery.
D) trough.
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Chapter 14: Inflation and Unemployment
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Sample Questions
Q1) As shown in Exhibit 13.1, the rate of inflation for Year 4 is:
A) 5 per cent.
B) 10 per cent.
C) 19 per cent.
D) 20 per cent.
Q2) Which of the following measures real purchasing power?
A) Real income.
B) Nominal income.
C) Increase in income.
D) Stable income.
Q3) When inflation is low and stable, firms:
A) can easily make judgments about relative real rates of return on alternative investments.
B) can easily make judgments about relative nominal rates of return on alternative Investments.
C) tend to invest more in real estate.
D) tend to invest more in tax effective investments
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Chapter 15: A Simple Model of the Macro Economy
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Sample Questions
Q1) A cut in government spending, a decrease in income abroad, an increase in taxes or an expectation that future consumer income will fall will all cause aggregate:
A) demand to shift outward.
B) demand to shift inward.
C) supply to shift outward.
D) supply to shift inward.
Q2) Classical economists believed that:
A) the forces of market supply will alone achieve equilibrium.
B) a long continuing prosperity is impossible.
C) a long continuing depression is impossible.
D) the forces of market demand will alone achieve equilibrium.
Q3) The aggregate demand is:
A) C + I + G + (X + M).
B) C + I + G - (X - M).
C) C + I + G*(X - M).
D) C + I + G + (X - M).
Q4) The only determinant of investment is the interest rate.
A)True
B)False
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Chapter 16: The Monetary and Financial System
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Sample Questions
Q1) Assume a fixed demand for money curve and the RBA decreases the money supply. In response, people will:
A) sell bonds, thus driving up the interest rate.
B) sell bonds, thus driving down the interest rate.
C) buy bonds, thus driving up the interest rate.
D) buy bonds, thus driving down the interest rate.
Q2) Fractional reserve banking is a system that allows:
A) banks to keep all their deposits on reserve as deposits at the central bank.
B) banks to create money.
C) banks to keep a very large percentage of their deposits on reserve as vault cash or as deposits at the central bank.
D) banks to keep all of their deposits on reserve as vault cash or as deposits at the central bank.
Q3) If every person is willing to accept money rather than goods and services for payment, money serves as a:
A) medium of exchange.
B) unit of account.
C) store of value.
D) coincident exchange.
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Page 18
Chapter 17: Macroeconomic Policy I: Monetary Policy
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Sample Questions
Q1) If the central bank announces that it is going to increase the money supply by 6 per cent this year, it is following:
A) a demand-based approach.
B) a discretionary monetary policy.
C) a discretionary fiscal policy.
D) a monetarist approach.
Q2) If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:
A) higher unemployment may result.
B) lower unemployment may result.
C) inflation will be higher than expected.
D) inflation will be unaffected, but unemployment will be lower.
Q3) The velocity of money is equal to nominal GDP divided by the money supply. A)True
B)False
Q4) Monetarists argue that velocity is reasonably predictable.
A)True
B)False
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Chapter 18: Macroeconomic Policy II: Fiscal Policy
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Sample Questions
Q1) Suppose the economy in Exhibit 17.1 is in equilibrium at point E<sub>1</sub> and the marginal propensity to consume (MPC) is 0.8. Following Keynesian economics, to restore full employment, the government should increase its spending by:
A) $200 billion.
B) $250 billion.
C) $500 billion.
D) $1 trillion.
Q2) Australian microeconomic reforms can be viewed as:
A) new demand-side reforms.
B) strictly political decision.
C) supply-side fiscal policies.
D) unnecessary spending.
Q3) The current stated fiscal policy of both major Australian political parties is to:
A) run deficits when economic growth is high.
B) run surpluses when economic growth is low.
C) have a balanced budget over each fiscal year.
D) have a balanced budget over the course of the business cycle.
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Chapter 19: International Trade and Finance
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Sample Questions
Q1) The infant industry argument is based on:
A) the idea that competitive pressure from established foreign firms would encourage the infant industry's prospects for future growth.
B) the idea that failure to shelter these infant industries tends to lead to political instability.
C) the idea that small firms must be protected.
D) the idea that the industry is not yet ready to compete with established foreign Competitors.
Q2) A favourable balance of trade occurs when:
A) exports equal imports.
B) the balance of payments balances.
C) the current and capital account in the BOP are equal.
D) the value of the exports of goods exceeds the value of the imports of goods.
Q3) If Australia has a current account deficit, then:
A) we must sell more exports to pay for it.
B) we will have a capital account surplus of the same amount.
C) we must buy more assets overseas.
D) the capital account will also be in deficit.
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