Finals sample practice test

1) Economics is best defined as the

A) study of how people make choices to satisfy their wants.
B) study of individual self-interests.
C) study of why people do not react to incentives.
D) process by which goods are sold in free markets.

2) Economics deals with choices

A) that involve the wants of individuals.
B) that involve what people only need to survive.
C) that people make without self-motivated interest.
D) that people normally do not make.

3) Microeconomics is the study of

A) the behavior of the economy as a whole.
B) a nation from the perspective of the whole world.
C) how individuals and firms make decisions.
D) the effect that money has in the economic system.

4) Macroeconomics deals with

A) aggregates within the economy.
B) specific sectors within the economy.
C) the retail industry only.
D) decisions made by firms.

5) The study of an individual's choice about what type of computer to buy is a subject of
A) macroeconomics.
B) microeconomics.
C) an aggregate concept.
D) not a concern for economic analysis.

6) "If event X occurs then event Y will follow" is a

A) positive statement.
B) normative statement.
C) non-testable statement.
D) statement lacking in logic.

7) When the president says that "High inflation rates are a much more serious economic problem
than high unemployment rates," it is an example of
A) a normative statement.
B) an empirically proven fact.
C) a positive statement.
D) an irrational argument.

8) Scarcity refers to
A) a shortage in a good or service.
B) the ability of society to consume all that it produces.
C) the inability of society to satisfy all human wants because of limited resources.
D) the inability of an individual to purchase a good or service due to her limited income.

9) Opportunity cost is best defined as

A) the sum of the dollar values of all alternatives given up when choices are made.
B) the cost of producing the purchased goods.
C) the next highest valued alternative when a choice is made.
D) the dollar price of the purchased item.

10) The concept of "demand" in economics refers to

A) the different quantities of a good or service people will buy at different possible prices.
B) the different types of goods and services that people of different income levels want to buy.
C) how changes in the prices of all goods affect people's buying behavior.
D) changes in people's consumption behavior over time.

11) According to the law of demand, other things being equal

A) when the price a good goes up, then people buy more of that good.
B) when the price a good goes down, then people buy more of that good.
C) when people's income goes down, then they buy less of a good.
D) when people's income goes up, then they buy less of a good.

12) If the price of portable power banks increases, then there will be ________ of portable power
banks.
A) a decrease in the supply
B) an increase in the supply
C) an increase in the quantity supplied
D) a decrease in the quantity supplied

13) An increase in price will lead to an increase in quantity supplied. This statement is
A) the law of supply.
B) the law of demand.
C) untrue always.
D) a normative statement.

14) The amount of pleasure or satisfaction derived from consumption of a good is called
A) need.
B) utility.
C) consumer surplus.
D) demand.

15) The utility that people experience from the consumption of a good depends on
A) their income level.
B) their tastes and preferences.
C) total sales of the good.
D) how much shopping time they spent obtaining the good.

16) Which English philosopher set out to develop an arithmetic formula for measuring happiness
and along the way invented the util?
A) John Maynard Keynes
B) Milton Friedman
C) Jeremy Bentham
D) Adam Smith

17) Marginal utility equals the change in total utility divided by

A) the number of units consumed.
B) the price of the product.
C) the change in the number of units consumed.
D) the consumer's subjective level of preference.

18) Implicit costs are measured by

A) the value of the next-best alternative uses of inputs.
B) actual expenses paid by a firm.
C) total revenues minus total costs.
D) the lowest value of all alternative uses of inputs.

19) Explicit costs are

A) the opportunity costs of all resources used by the firm.
B) the costs associated with the resources that the firm owns.
C) actual expenditures that a firm must make.
D) all costs associated with the short run.

20) Which of the following is NOT a characteristic of a perfectly competitive market?

A) The products sold by the firms in the market are homogeneous.
B) There are many buyers and sellers in the market.
C) It is difficult for a firm to enter or leave the market.
D) Each firm is a price taker.

21) The perfectly competitive firm cannot influence the market price because
A) it has market power.
B) its production is too small to affect the market.
C) a few buyers have control over the market price.
D) its costs are too high.

22) A market structure in which the decisions of individual buyers and sellers have no effect on
market price is
A) monopoly.
B) monopolistic competition.
C) perfect competition.
D) oligopoly.

23) Which of the following is closest to a perfectly competitive market?

A) the computer software market
B) the market for handmade guitars
C) the market for broccoli
D) the market for athletic shoes

24) The perfectly competitive firm faces

A) a downward sloping demand curve.
B) a horizontal supply function.
C) perfectly elastic demand.
D) constant marginal costs.

25) Economists generally assume that firms attempt to maximize

A) total revenue.
B) sales.
C) marginal revenue.
D) total economic profits.

26) Refer to the above figure. Profits for this firm are positive
A) only for all points less than B.
B) only at points B and C.
C) for points between B and C.
D) for all points less than B and greater than C.

27) Refer to the above figure. Profits for this firm will be maximized at
A) point B.
B) point C.
C) a quantity greater than point C.
D) a quantity between points B and C.

28) Refer to the above figure. Profits for this firm are equal to zero
A) only for all points less than B.
B) only at points B and C.
C) for points between B and C.
D) for all points less than B and greater than C.

29) Refer to the above figure. Profits for this firm are negative
A) only for all points less than B.
B) only at points B and C.
C) for points between B and C.
D) for all points less than B and greater than C.

30) Which is always TRUE at a firm's profit-maximizing rate of production?

A) Total Revenue = Total Costs
B) The total revenue curve lies below the total cost curve.
C) Marginal Revenue > Marginal Cost
D) Marginal Revenue = Marginal Cost

31) Which of the following is TRUE for the perfectly competitive firm?
A) Price and MR are always equal.
B) AR is less than price.
C) AR is more than price.
D) Price elasticity of demand is equal to 1.

32) Refer to the above figure. When the price in the market is $4, economic profits will equal
A) $100.
B) $200.
C) $300.
D) $400.

33) A company finds that at its present level of production, MC = AVC at $15, MC = ATC at
$20, and MC = MR at $17. Your advice to the firm regarding its short-run operations is
A) to continue production, as it is earning an economic profit of $2 per unit.
B) to continue production, as it is earning an economic profit of $3 per unit.
C) to shut down.
D) to continue production at a loss.

34) According to the above figure, if the firm is earning zero economic profits, what quantity is
the firm selling and at what price?
A) Q = 200; P = $4
B) Q = 1,000; P = $5
C) Q = 800; P = $4
D) Q = 1,200; P = $7

35) A firm earning economic losses should operate in the short run as long as
A) the price per unit sold is greater than the average fixed cost per unit produced.
B) the price per unit sold is greater than the average variable cost per unit produced.
C) marginal revenue is at least the price per unit sold.
D) the price per unit sold is equal to or greater than the marginal cost of production.
36) As long as price exceeds AVC, the firm is better off
A) continuing production.
B) closing.
C) raising its price.
D) cutting price.

37) Suppose the price of an item in a perfectly competitive market is $2. For a firm in this
market, MC = MR at an output of 100 units. The average total cost at this output level is $4 per
unit, and TVC is $80. We may conclude that
A) the firm should shut down because TC > TR.
B) the firm should continue to produce because P>AVC.
C) the firm should shut down because its TFC is $320 and its TC is $400.
D) the firm should shut down because other firms will enter the industry as the market is
perfectly competitive.

38) Using the above figure, the perfectly competitive firm in the diagram will earn an economic
profit if the market price is
A) P1.
B) P2.
C) P3.
D) P4.

39) Using the above figure, the perfectly competitive firm should shut down if the market price
is below
A) P1.
B) P2.
C) P3.
D) P4.

40) Using the above figure, the short-run break-even price for the perfectly competitive firm will
be
A) P1.
B) P2.
C) P3.
D) P4.

41) Monopoly producers face

A) many competitors producing the same product.
B) only a few competitors producing the same product.
C) at least one competitive producer of the same product.
D) no competitive producers of the same product.

42) The market structure in which there is a single supplier of a good or service for which there
is no close substitute is
A) a price searcher.
B) a monopoly.
C) a price taker.
D) perfect competition.

43) In a monopoly market structure, the firm (the monopolist) always

A) is the whole industry.
B) produces too much.
C) sells faulty products.
D) earns economic profit.

44) Which of the following is NOT a barrier to entry?

A) patents
B) licenses
C) economies of scale
D) U.S. antitrust legislation

45) All of the following are considered a barrier to entry into a market EXCEPT
A) ownership of resources without close substitutes.
B) when firms can only earn a normal rate of return in a market.
C) economies of scale.
D) governmental restrictions on a firm's ability enter a market.

46) Which of the following is a characteristic of a monopoly firm?

A) horizontal individual demand curve
B) barriers to entry
C) easy entry and exit
D) many buyers and sellers
47) A monopolist's demand curve is
A) perfectly elastic.
B) perfectly inelastic.
C) of unit elasticity throughout.
D) the industry demand curve.

48) An important difference between a perfectly competitive firm and a monopolist is

A) the size of the firms.
B) the shape of the demand curve each faces.
C) the goals of the owners of the firms.
D) a monopolist normally produces a service, while a perfect competitor normally produces a
good.

49) To induce an increase in the quantity demanded of its product, a monopolist must reduce the
A) quality of its product and thereby generate a downward shift its ATC curve.
B) price of its product and thereby generate a rightward shift in its demand curve.
C) price of its product and thereby generate a rightward movement along its demand curve.
D) quality of its product and thereby generate a downward movement along its ATC curve.

50) For a monopolist, the reason that marginal revenue is less than price is
A) because of the perfectly elastic demand curve that the monopolist faces.
B) because the monopolist must lower the price of the good in order to sell an additional unit.
C) because of the U-shaped average revenue curve.
D) because of the lack of competition in the market.

51) If a monopolist can sell 20 units at price of $200 per unit and 30 units at a price of $180 per
unit, its marginal revenue at an output of 30 is
A) $-200.
B) $800.
C) $1400.
D) $1800.
52) In the above figure, the monopolist's profit-maximizing output level is
A) A.
B) B.
C) C.
D) D.

53) In the above figure, the monopolist's profit-maximizing price is

A) A.
B) B.
C) C.
D) D.

54) Refer to the above table. Given the demand and cost schedules, what is the profit
maximizing quantity for this monopolist?
A) 15
B) 20
C) 25
D) 30

55) Refer to the above table. Given the demand and cost schedules, what is the profit-
maximizing price for this monopolist?
A) $13
B) $12
C) $11
D) $10

56) Refer to the above table. Given the demand and cost schedules, what are the maximized
economic profits for this monopolist?
A) $122
B) $152
C) $220
D) $150

57) Refer to the above table. Given the demand and cost schedules, what are the maximized
economic profits for this monopolist?
A) $122
B) $152
C) $220
D) $150

58) Refer to the above figure. The profit maximizing quantity for this firm is
A) zero.
B) Q1.
C) Q2.
D) Q3.

59) Refer to the above figure. The profit-maximizing price for this firm is
A) P1.
B) P2.
C) P3.
D) P4.
60) A firm that can determine the price-output combination in order to maximize profit is known
as a
A) price searcher.
B) price taker.
C) demand searcher.
D) cost taker.

61) The additional revenue earned from hiring one more worker is known as the
A) marginal physical product of labor.
B) marginal revenue product of labor.
C) marginal factor cost of labor.
D) marginal utility of labor.

62) Suppose at the current level of labor used, MRP = $20 and MFC = $25. To maximize profits,
the firm should
A) hire more labor.
B) reduce the level of labor.
C) maintain the current level of labor.
D) expand production.

63) Marginal revenue product is

A) marginal physical product multiplied by marginal revenue.
B) marginal physical product multiplied by average variable cost of the product.
C) the price of the product.
D) the total revenue from the sale of the product sales.

64) A firm will not hire additional workers once

A) it earns accounting profits.
B) the additional cost of a worker equals the additional revenue from the worker.
C) total product is rising.
D) the company reaches its breakeven output level.

65) A firm's marginal revenue product of labor curve is also

A) its labor demand curve.
B) its marginal cost curve.
C) its total revenue line.
D) its long-run input cost function.
66) Refer to the above table. What does the marginal physical product equal when the amount of
labor goes from 10 to 11 units?
A) 60
B) 50
C) 10
D) 5

67) Refer to the above table. If the price of the good produced is $6, the marginal revenue
product of the 11th worker is
A) $60.
B) $66.
C) $350.
D) $360.

68) Refer to the above table. What does the marginal physical product equal when the amount of
labor goes from 11 to 12 units?
A) 60
B) 9
C) 10
D) 69

69) The marginal factor cost is the

A) additional revenue obtained from a one-unit change in labor input.
B) additional revenue obtained from a one-unit change in output.
C) change in output resulting from the addition of one more worker.
D) cost of using an additional unit of an input.

70) If MFC < MRPL, the firm should

A) hire more workers.
B) lower wages.
C) get rid of some capital.
D) reduce the number of workers.

71) A firm's employment of labor outside the country in which the firm is located is called
A) featherbedding.
B) a lockout.
C) outsourcing.
D) dumping.

72) Which of the following is an example of outsourcing?

A) A U.S. firm moves a manufacturing plant from the U.S. to Thailand where the firm can hire
cheaper labor.
B) A German firm hires an accountant in the U.S. to manage its payrolls.
C) All the above are examples of outsourcing.
D) None of the above is an example of outsourcing.
73) Which of the following statements describes the long-run effects of global outsourcing?
A) Wages for U.S. workers will decrease but wages in other countries will increase.
B) Wages in all countries will remain the same as before the outsourcing.
C) Wages and employment will increase globally.
D) Wages will increase globally and employment will stay the same.

74) When firms in a U.S. industry outsource some of their production,

A) both U.S. labor demand and U.S. wages in the industry fall
B) U.S. labor demand falls, but U.S. wages are not affected.
C) U.S. labor demand remains unchanged, but U.S. wages fall.
D) U.S. labor demand falls, but U.S. wages increase.

75) The distribution of income in one nation can be illustrated by the

A) Laffer curve.
B) aggregate demand curve.
C) Lorenz curve.
D) Phillips curve.

76) According to the text, the highest 20 percent of U.S. income households earn about what
percentage of total income today?
A) 10 percent
B) 20 percent
C) 50 percent
D) 95 percent

77) The more bowed out the Lorenz curve, the

A) less equal the income distribution.
B) more equal the income distribution.
C) greater the overall wealth in the economy.
D) less the overall wealth in the economy.

78) Which of the following would be considered income in kind?

A) tax refunds
B) food stamps
C) yard sales
D) reduction in the tax rates
79) The above figure displays
A) income-inequality curves.
B) Gini Coefficients.
C) Lorenz curves.
D) Laffer curves.

80) Refer to the above figure. Which curve shows the most unequal distribution of income?
A) A
B) B
C) C
D) D

81) Refer to the above figure. Which curve shows the second most unequal distribution of
income?
A) A
B) B
C) C
D) D

82) Refer to the above figure. For which Lorenz curve does the richest 25 percent make 50
percent of the nation's money income?
A) A
B) B
C) C
D) D

83) Refer to the above figure. For which Lorenz curve does the richest 40 percent make 50
percent of the nation's money income?
A) A
B) B
C) C
D) D

84) All of the following are income in kind EXCEPT

A) government provided housing.
B) government provided education.
C) tips received by a waitress.
D) goods produced in the home.

85) The age-earnings cycle is

A) the distribution of money income by age.
B) the distribution of wealth by age.
C) the relationship between earnings while working and retirement benefits for an individual.
D) the regular earnings profile of an individual throughout his or her lifetime.

86) The earnings of most people

A) increase steadily until retirement.
B) increase with age until around age 50 due to increased experience, training, and hours
worked.
C) increase with age until around age 40 due to increased experience and hours worked.
D) increase with age until around age 60 due to increased experience, training, and hours
worked, then level off as hours worked levels off.

87) Which of the following is NOT a determinant of an individual's marginal product?

A) talent
B) money income
C) experience
D) educational level

88) The Social Security system is financed by

A) a tax on individual retirement accounts.
B) a payroll tax paid only by employers.
C) a payroll tax paid by both employers and employees.
D) a tax on luxury goods.

89) The original objective of Social Security was

A) to provide retirement fund for all persons.
B) to prevent future depressions.
C) to raise the nation's saving rate.
D) a proper response to the stock market crash of 1929.

90) Relative poverty refers to

A) how a family's income compares to the incomes of those around them.
B) poverty levels at a stated income cutoff.
C) the number of poor in one state relative to another.
D) none of the above.

91) Which of the following income maintenance programs is designed to establish nationwide
minimum incomes for the aged, the blind, and the disabled?
A) the Old-Age Survivors' and Disability Insurance (OASDI) program
B) the Supplemental Security Income (SSI) program
C) the Temporary Assistance to Needy Families (TANF) program
D) the food stamps program

92) The purpose of the Earned Income Tax Credit Program (EITC) is to
A) provide rebates of Social Security taxes to low-income workers.
B) encourage low- and moderate-income workers to take second jobs to increase their income.
C) provide in-kind services such as food stamps and public housing to those individuals who
have poor credit.
D) give tax credits to low-income individuals who do volunteer work in their communities.

93) Which income maintenance program was started to support the nation's farmers?
A) Supplemental Security Income
B) food stamps
C) Earned Income Tax Credit program
D) AFDC

94) Today the portion of total U.S. national income spent on health care is about
A) 7 percent.
B) 17 percent.
C) 34 percent.
D) 51 percent.

95) An example of third-party financing of health care is

A) patients paying for their visit to the doctor.
B) patients not going to the doctor in order to save money.
C) a patient going to another doctor for a second or a third opinion.
D) Medicare.

96) Other things being equal, a national health insurance program would
A) decrease the demand for health care.
B) decrease moral hazard.
C) decrease total health care expenditures.
D) reduce individuals' incentives to make decisions that promote better health.

97) All of the following are reasons that health care costs have risen so much in the past few
decades EXCEPT
A) the aging population.
B) higher imports.
C) new technologies.
D) third party payments.

98) A major benefit of a health savings account is that it

A) combats moral hazard.
B) means more health care services will be demanded.
C) eliminates rising health care costs.
D) creates the incentive to see a doctor regularly.

99) In insurance markets, moral hazard occurs when the behavior of

A) the insured person changes in a way that raises costs for the insurer, since the insured person
no longer bears the full costs of that behavior.
B) the insurer changes in a way that raises costs for the insured person, since the insurer no
longer bears the full costs of that behavior.
C) the insured person changes in a way that eliminates rising health care costs for the insurer,
since the insured person no longer bears the full costs of that behavior.
D) the insured person has an incentive to under consume medical services, simply because the
insured person no longer bears the full cost of medical services.

100) All of the following are key features of the federal government's new national health care
program EXCEPT
A) people must either purchase health insurance or pay a fine to the federal government.
B) a young person in good health can opt not to purchase health insurance without penalty.
C) firms with at least 50 employees must either provide health insurance or pay fines when
uninsured employees receive tax subsidies to purchase insurance.
D) government-directed exchanges will assist in matching individuals and small businesses with
health insurance policies that satisfy government requirements.