Micro and Macro Economics questions assignment

– Fundamentals of Economics
William Boyes and Michael Melvin
Complete all Questions in this assessment.

Chapter 1—Economics and the World Around You


1. Which of the following is a reason to study economics?
a. Economic analysis explains daily events.
b. It helps us understand why people, firms and government behave in a certain way. c. We need to understand relevant economic applications and policy issues.
d. It provides useful logic for solving complex problems.
e. All of these

2. According to the text, why are some countries rich and others very poor?
a. Some countries have no oil.
b. People have no property rights.
c. Access to education is very limited.
d. High tariffs prevent international trade. e. All of these.

3.The primary reason to explain why some nations are rich and others poor is a. A democratic government
b. A strong judicial system c. Access to education
d. Private ownership
e. A stable currency

5.Private property rights are important because
a. they create incentives for people to improve their standard of living. b. the Constitution says so.
c. they allow students to choose their major field of study in college.
d. an economy cannot grow without them. e. all of these

7.Overfishing, and in some cases extinction of species result from:
a. scarcity
b. greedy fishermen who cheat and take more than their fair share c. no one has an incentive to take care of it
d. lack of laws to control the amount of fish taken
e. all of these

8.Sonia works at a restaurant where tips are pooled and divided equally. Anna works at a different restaurant where she keeps the tips her customers leave for her. Which of the following is true?
a. Both work equally hard because their hourly wage from the employer is low, and they can make up for this with tips
b. Sonia works harder, because she receives the same amount of tips as other workers.
c. Anna works harder, because she works at an expensive restaurant. d. Anna works harder because her tips are her private property.

9.The main reason villagers in Xiaogang produced more rice than those in surrounding villages was a. they had better farmland.
b. they were given better seeds.
c. they were able to keep the output they produced individually. d. they made each family responsible for a certain, higher quota

12.Economic freedom is
a. the right to own property. b. not having to pay taxes.
c. exists only in some countries. d. affects only poor people.
e. the ability to engage in voluntary trade.

a. ensures people become satisfied with less than they want. b. exists only during a recession.
c. exists only in some countries. d. affects only poor people.
e. requires people to make choices.

Chapter 2—Markets and the Market Process

1. is an example of an allocation mechanism. a. Market
b. First-come, first-served c. Government dictate
d. Random
e. All of these are examples of allocation mechanisms.

4.Which of the following mechanisms is unfair?
a. Market.
b. First-come, first-served. c. Government
d. Random
e. All of these are unfair in a sense; it depends on the incentives each creates.

7.What incentives are created under a first come, first served allocation mechanism?
a. Fairness

b. Equality for all c. To be first
d. To produce the most
e. To acquire purchasing ability (to obtain income and wealth)
8. What incentives are created under a government allocation scheme?
a. Fairness
b. Equality for all c. To be first
d. To be in favor with or match up with government’s rules
e. To acquire purchasing ability (to obtain income and wealth)
9. What incentives are created under a random allocation scheme?
a. Fairness
b. Equal results for all c. To be first
d. To be in favor with or match up with government’s rules e. No incentives are created

Chapter 3—Applications of Demand and Supply

1. A change in consumer tastes for low-carb food and a decrease in their preferences for low-fat meals does
not lead to which of the following?
a. An inward shift of the demand curve for low-fat meals
b. An outward shift of the demand curve for low-carb food
c. An increase in the amount of resources used to produce low-carb food d. A decrease in the amount of resources used to produce low-fat meals e. A reduction in the value of resources used in low-carb food
2.According to Figure 3.1, as represented by the shift from D1 to D2, a. the demand for low-fat food has risen.
b. the quantity of low-fat food supplied has declined. c. eating low-fat food may have become popular.
d. consumer tastes for low-fat food may have risen.
e. consumer tastes for high-fat food may have fallen.

6.In a market system, resources flow from lower-valued uses to higher-valued uses because of a. the dictates of the government.
b. the desires of business to make a profit. c. first come, first served.
d. the consumer is always right.
e. comparative advantage.

7.In a market system, decide what will be produced. a. producers
b. consumers
c. politicians
d. government authorities
e. central planning agencies

10.”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.

20.Which of the following influence the level of wages?
a. Training and Education
b. Amount of time required to be away from home c. Risk of the occupation

d. Experience e. All of these
Figure 3.2

24.Which of the following is not correct?
a. A person may be paid a wage higher than he or she is worth, if he or she works in a risky profession.
b. A person in a risky profession will likely be paid more than a person of equal skills in another profession.
c. It is possible that a person will turn down a higher-paying job because his or her current
job provides many nonmonetary benefits.
d. By increasing his or her human capital, a worker can expect to receive a higher wage.
e. If there were no compensating wage differential, there would be a shortage of workers in risky professions.

25. In Figure 3.4, the reason for the wage differential could be the fact that a. market A is the market for a risky occupation.
b. market B consists of unskilled labor.
c. market A consists of workers with more human capital. d. market B consists of workers with less human capital.
e. all of these are true.

Chapter 4—The Firm and the Consumer


1. Total revenue is the
a. price at which a product is sold multiplied by the cost of producing the product.
b. price at which a product is sold multiplied by the number of units of the product that is sold.
c. price at which a product is sold multiplied by the number of units of the product that is
d. average price of a product divided by the number of units of the product that is sold. e. none of these.
2. Average revenue is
a. the price at which a product is sold multiplied by the cost of producing the product.
b. the price at which a product is sold divided by the number of units of the product sold. c. total revenue divided by the number of units of the product sold.
d. the number of units of the product sold divided by the price at which the product is sold.
e. total revenue divided by the average price.

3. Marginal revenue is
a. the price at which a product is sold multiplied by the cost of producing the product.
b. the price at which a product is sold divided by the number of units of the product sold. c. the change in total revenue divided by the change in quantity sold.
d. the change in quantity sold divided by the change in total revenue.

7.Demand provides a great deal of information to a business. A business can learn about the demand for its products by conducting a survey
a. asking people what they would be willing to pay for one unit of a certain product. b. carried out at dinnertime asking about the prices of various goods.
c. conducted in a shopping mall asking about various goods. d. in a focus group.
e. all of these

10.The price elasticity of demand for a product measures
a. how much price changes given a change in demand. b. the slope of the demand curve for that product.
c. changes in demand.
d. how responsive consumers are to a price change. e. how responsive producers are to a price change.
Chapter 5—Costs and Profit Maximization

1. Labor, land, and capital used in production are a. resources.
b. outputs.
c. productivity.
d. technological progress. e. innovations.
2. The transformation of resources into economic goods and services is called a. technical efficiency.
b. resource.
c. production.
d. increasing returns. e. output.
3. Economic goods and services produced by business firms are a. resources.
b. outputs.
c. innovations. d. productivity.
e. technological progress.

4.Average total cost is calculated by dividing
a. the change in total cost by the change in the quantity of output. b. total output by the number of people employed.
c. the change in total output by the change in the number of people employed. d. total cost by total output.
e. total output by total cost.

Figure 5.1
a. 10.
b. 35.
c. 50.
d. 75.
e. 90.
58. In Figure 5.1 the firm is maximizing profit at a quantity of

62. Refer to Figure 5.2. If the firm is incurring losses, we can say with certainty that a. the firm is producing and selling below quantity Q1.
b. the firm is producing and selling above quantity Q3.
c. the firm should increase production.
d. the firm should shut down.
e. no decision should be made about increasing or decreasing the firm’s production level unless more information is provided.
Chapter 6—Competition

1. The results of competition will be different depending on a. the type of product being produced.
b. the size of the largest firm.
c. whether rivals can enter the business. d. how consumers utilize a product.
e. the season of the year.

4.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.

7.A product is turned into a commodity when
a. there is only one seller of a product
b. there is no more incentive for new businesses to enter c. there is product differentiation
d. economic profits can be earned
e. consumers perceive the product to be differentiated
8. Monopoly is a market structure characterized by a. one producer with ease of entry.
b. few producers vying to become the sole supplier to the market.
c. many producers but one dominant firm.
d. one producer and entry by other firms is not possible.
e. one producer of something that the government requires everyone to purchase.

Chapter 7—Business, Society, and the Government

1. In a market system, the primary goal of a business is a. to earn the largest economic profit possible.
b. benefit society.
c. encourage employment.
d. charge the highest possible price.
e. satisfy the needs of taxpayers and politicians in their market area.
2. In general, the market system is the most efficient allocation mechanism because a. government oversight ensures market efficiency.
b. no monopolies are allowed to be created.
c. everyone has an equal part in determining the market outcome. d. in pursuing their self-interest, people create efficiency.
e. of all of these.
3. Economists like to illustrate the benefits of competition by comparing the results of a(n) with the results of a(n) _.
a. supply; demand
b. commodity market; monopoly c. oligopolist; perfect competitor
d. monopolistic competitor; perfect competitor
e. profit-making firm; firm that incurs negative profit
4. When can occur, no firm can get away with anything. a. free exit
b. free entry
c. advertising
d. positive economic profits e. product differentiation

5. In a competitive market situation, when a firm is earning significant positive economic profit, a. government will intervene and establish greater regulation.
b. other firms will enter the market.
c. government will likely increase the tax rate on this firm in the long run. d. competitors are more likely to cooperate with the leading firms.
e. common property ownership will likely be created with the economic profits.

12.When shopping in some countries, bargaining is standard. The sellers ask for a high price to start, and then decrease the price until the sale is made. This is due to
a. prices changing so quickly that it doesn’t make sense to make price tags. b. consumers trying to gain as much consumer surplus as they can.
c. producers trying to gain as much consumer surplus as they can. d. the market unable to reach equilibrium.
e. no government control.

Chapter 8—Government Intervention versus Free Markets
3.The market system is the most efficient allocation system.
a. always
b. generally
c. sometimes
d. almost never e. never
4. When economic profit is , the firm will . a. positive; face new competition
b. positive; enjoy large economic profits for a long time
c. negative; cease to exist
d. negative; face new competition e. zero; go out of business
5. What is the main reason many economists do not believe in or trust the free market?
a. the speed with which a free market adjusts to changes b. market failures
c. special interest groups influence politicians
d. natural resources are over-used
e. statistical discrimination is costly
6. In a market system, those who own the most highly valued resources a. have the highest incomes.
b. pay the largest share of income taxes.
c. support charitable organizations in the community. d. employ the greatest numbers of people.
e. pay the highest property tax.

Chapter 10—Macroeconomic Measures

1. National income accounting is
a. used by business firms to determine the level of profit during a given year. b. used by accountants to figure household tax obligations.
c. a system of accounts designed to measure macroeconomic activity.
d. a system of measures that indicates when an economy is experiencing inflation.
e. a system of microeconomic measures that indicates equilibrium conditions for individual markets.
2. National income accounting can best be characterized as a
a. set of rules to summarize economic activity over a given period of time. b. system for comparing different political systems.
c. microeconomic model used by the Federal Reserve.
d. statistical measure of the income received by consumers as opposed to businesses. e. standardized economic report written by politicians.

5.Gross domestic product constitutes the
a. total quantitative output in an economy.
b. current market value of all goods and services produced in a given year. c. total spending in an economy.
d. total monetary transactions in an economy.
e. current market value of all final goods and services produced in a given year within a country’s borders.
6. Which of the following economic activities is not be counted as part of GDP?
a. A student working part-time
b. A housewife selling cherry pies in the corner store c. A gang member selling illegal drugs
d. The government buying computers for public schools
e. None – all of these are counted in GDP.

Chapter 11—Unemployment, Inflation, and Business Cycles

1. At any time, job opportunities depend on all of the following except a. the individual’s ability.
b. the individual’s experience.
c. the current state of the economy.
d. the individual’s level of education.
e. all of these determine job opportunities.

2. During the Great Depression in the 1930s, all of the following were characteristic of the economy except
a. about one in four workers was out of work.
b. a large number of firms had laid off workers or gone out of business. c. consumer prices rose.
d. national output fell 25%.
e. none – all of these were characteristic of the economy during the Great Depression.
3. The most widely used measure of a nation’s output is a. CPI
b. NNP
c. GNP
d. GDP
e. NI
4. The two most important aspects of business cycles are changes in a. business profits and the money supply.
b. unemployment and inflation.
c. monopolies and the international sector.
d. the price system and the foreign exchange market. e. inflation and fiscal policy.
5. A business cycle refers to
a. fluctuations in the level of corporate profits. b. seasonal unemployment patterns.
c. the ups and downs of real GDP.
d. changes in the long-term growth pattern of the CPI. e. fluctuations in the general price level.
6. Business cycles are
a. variations in the economy that are all equal in intensity.
b. seasonal variations in the economy that occur every year.
c. fluctuations in economic output that show a declining growth pattern over time. d. periodic but irregular variations in economic activity.
e. exactly alike in the amount of time that passes from peak to peak.
7. In the business cycle, a trough marks the end of a(n) and the beginning of a new . a. contraction; expansion
b. peak; expansion
c. expansion; contraction d. peak; contraction
e. expansion; peak
8. Economists call a severe prolonged economic recession a a. slump.
b. depression. c. stagnation.
d. trend.

e. contraction.

9. The part of a business cycle that follows a trough is the a. contractionary phase of the cycle.
b. breakeven point of the cycle.
c. peak period of the cycle.
d. recessionary phase of the cycle. e. expansionary phase of the cycle.
10. The period between a peak and a trough is known as a(n)
a. boom.
b. recovery.
c. expansion.
d. business cycle. e. contraction.
11. The four phases of a business cycle, in order, are a. peak, contraction, trough, expansion.
b. recession, trough, peak, expansion. c. expansion, trough, recession, peak.
d. trough, recession, expansion, peak. e. peak, expansion, trough, recession.
Figure 11.1

12. The movement from point A to point B in Figure 11.1 is most likely associated with a. negative inflation rates.
b. an increase in aggregate demand for goods and services.
c. lagging economic productivity.
d. an increase in cyclical unemployment.
e. a downward trend in leading economic indicators.

26.The official unemployment rate is the number of unemployed people divided by the a. number of employed people.
b. total size of the population.
c. size of the noninstitutionalized population. d. size of the labor force.
e. size of the noninstitutionalized population, age 16 or older.

35. The underground economy
a. includes those who collect unemployment insurance but are working “under the table.” b. causes the official unemployment rate to be higher than the true unemployment rate.
c. includes those who would rather be on welfare than work.
d. is limited to people engaged in illegal drug trafficking and prostitution. e. is all of these.
36. Which of the following statements about seasonal unemployment is true?
a. It results primarily from downturns in economic activity.
b. It is likely to be associated with jobs that are affected by changes in the weather. c. It is the type of unemployment associated with discouraged workers.
d. It is likely to be affected by changes in consumer preferences.
e. It is difficult to predict because it involves all kinds of workers.
37. 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
38. Seasonal unemployment
a. causes the natural rate of unemployment to rise. b. is reflected in the GDP gap.
c. is not reflected in official unemployment data. d. inflates potential GDP.
e. is not considered a legitimate type of employment.

Chapter 14—Money and Banking

1. Money is
a. an indicator of the scarcity of wants.
b. anything that the government classifies as a trade commodity.
c. anything that sellers accept in exchange for goods and services. d. a form of credit.
e. a form of barter.
2. Many recent changes affecting the banking industry include all of the following except:
a. the emergence and growth of the internet b. government deregulation
c. the financial crisis of 2007-2008
d. non-bank financial institutions offering checkable deposit accounts e. none – all of these impact(ed) the current banking industry
3. Liquidity refers to the
a. ability of an asset to be exchanged for goods and services. b. difference between real and nominal money values.
c. ability of money to be a store of value.
d. availability of credit as a form of money.
e. ability of a precious metal to be converted into spendable bank notes.

10.The introduction of money into the economic system a. decreased the risk of inflation.
b. lowered transaction costs.
c. established the need for a double coincidence of wants. d. increased information costs.
e. made exchanges of goods and services less efficient.
11. A commodity will not likely be classified as money if it is a. portable.
b. divisible.
c. perishable.
d. homogeneous in nature. e. predictable in value.

Chapter 17—Issues in International Trade and Finance

1. Trade occurs because it
a. keeps transportation companies, such as airlines and railroads, economically viable.
b. reflects individual consumers’ dollar votes in favor of imported rather than domestic goods and services.
c. meets foreign policy goals for governments.
d. justifies the many “trade missions” politicians in most countries take, which are really foreign vacations at their governments’ expense.
e. makes people better off.
2. Comparative advantage is based on the a. “gains from trade” concept.
b. idea of economic superiority.
c. absolute opportunity costs of producing goods in different countries. d. relative opportunity costs of producing any good in one country.
e. relative opportunity costs of producing goods in different countries.
3. A country has an absolute advantage when it can produce a good than other countries can. a. at a greater monetary cost
b. at a lower monetary cost c. with fewer hours of labor
d. at a greater input cost e. at a lower input cost

Chapter 18—Globalization

1. In addition to economic dimensions, globalization has and dimensions. a. chemical; biological
b. accounting; intuitive
c. clerical; art history d. friendly; unfriendly e. political; social
2. Globalization is characterized by increased trade in a. goods.
b. services.
c. financial assets. d. technology.
e. all of these.

4.The forces that drive globalization
a. focus on fairness and equality. b. are a result of World War II.
c. have existed as long as humans have been around.
d. were initiated in the United States. e. are all of these.
5. The economic basis for trade is a. the race to the bottom.
b. speculative attacks. c. insourcing.
d. comparative advantage. e. none of these.

9.Most of the countries that are closed to global trade are a. social democracies.
b. among the poorest countries in the world. c. oil-rich countries.
d. among the largest economies and therefore do not need to trade with other countries. e. geographically isolated from the rest of the world.
10. The movement of people across international borders is a. an alternative to globalization.
b. a result of the race to the bottom.
c. greatly limited by government policies. d. a buffer against speculative attacks.
e. all of these.

Section : Short Essay

1. Draw the 5-sector circular flow of income diagram. Then, explain how the increase in exports and an increase in taxation can affect the economy. Use examples to show how and why the economy may grow or slow down.

2. Discuss how the recent big increases in oil prices can affect some industries in Australia. How will this in turn affect the Australian economy? Use examples and diagrams to support your explanation.

3. Explain what government fiscal policies are and discuss how such government actions can be used to help the economy to grow faster. Provide examples to illustrate how these actions affect the economy.

4. Explain how a slowdown in the housing market can lead to a slowdown in the economy. Explain how a reduction in interest rate may improve housing sales and help the economy to grow. Use demand and supply curves to explain.

5. Provide three examples of the advantages of international trade. Provide two reasons why some governments are afraid of international trade. Discuss two ways by which these governments restrict imports into their countries.

6. Study the supply and demand schedules for bread below and answer the following questions.
Price ($) Quantity Demanded D (
,000) Quantity Supplied

S ( ,000)
















a. In a free-market situation, what will the equilibrium price be?

What is the price elasticity of demand in the price range $2 to $2.50 as price increases?


Lower Cost to get High

Tim Treadgold, BRW, April 27 2001, p. 19.
Most shoppers complain about rising prices. But buyers of marijuana, Australia’s leading illicit drug, have been enjoying a totally different sensation. High levels of production, thanks largely to the hydroponics revolution, have led to prices falling substantially over the past 10 years. Researchers at the University of Western Australia say they have uncovered what looks to be a classic case of supply outstripping demand. Using data provided by the Australian Bureau of Criminal Intelligence, the university’s team of Ken Clements and Mert Daryal found that the average price for marijuana in Australia fell
24% in nominal terms between 1990 and 1999, and 36% relative to the consumer price index (CPI).

Clements, co-author of a study last year on the size of the marijuana industry, says the latest research into price was designed to test how rising levels of production were affecting the market. ‘It revealed pretty much what we suspected, that growth in supply leads to falling prices,’ he says.

In their earlier study, Clements and Daryal found that marijuana was already a bigger industry than some sectors of the alcoholic beverages business. The value of marijuana outstrips spirits and rivals the size of domestic wine consumption, and the new pricing study shows one of the reasons why. The price decline relative to the CPI is almost matched by a 34.2% fall in the marijuana price relative to the alcohol price index.

‘Most of the data comes from police undercover buying,’ Clements says. ‘It lacks uniformity but does show a consistent pattern of falling prices. A number of economic factors appear to be at work, including higher output levels and increased quality of hydroponically grown marijuana, which has a higher potency (of the active ingredient in marijuana, delta-9-tetrahydrocannabinol, known as THC).’

On a state-by-state basis, Victoria shows one of the biggest falls in price over the study period, with an ounce of marijuana, purchased as a head of the plant, falling from $1050 in 1990 to $630 in 1999. The price in Queensland dropped from $1400 an ounce in
1990 to $723 in 1998, the last year for an accurate price. Prices in New South Wales have been surprisingly consistent, about $1120 an ounce over the 10 years.

For price-conscious shoppers, Darwin is the cheapest location, with an ounce of marijuana costing $773 by the head or $705 an ounce in leaf form.
Complete the following Questions based on the text above
1. Using demand and supply curves, illustrate why the price of marijuana has fallen.

2. How would you characterize the price-elasticity of demand for marijuana?

3. What do you think would be the effect of decriminalizing marijuana? Use demand and supply curves to illustrate your answer.

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