Dr. Murasko
ECON 2302
BAPA 5301: SURVEY OF BUSINESS PRINCIPLES
ECONOMICS PRACTICE PROBLEMS/QUESTIONS, PART I
Be able to recognize the following terms on quiz questions. You do not necessarily have to
memorize formal definitions, but you must be able to understand and apply the vocabulary as
needed. If you read through this list and find several terms that are not readily familiar to you,
then it is suggested that you write their definitions as presented in the reading handout.
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economics
microeconomics
macroeconomics
explicit costs
opportunity costs
sunk costs
utility
positive statement
normative statement
market
product market
resource market
market demand
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law of demand
price elasticity of demand
price elastic
price inelastic
normal good
inferior good
substitute goods
complement goods
market supply
law of supply
market equilibrium
excess supply (surplus)
excess demand (shortage)
The following questions and problems are intended to give you practice in identifying and
applying the concepts presented in the reading handout. Your answers to these problems will not
be submitted for a grade, but you are expected to try these on your own. Answers will be
provided in a separate document.
1. List the four major types of decision-makers in the economy. For each one, list one choice
that it has to make and one constraint on that choice.
2. Characterize each of the following as either a product market or a resource market:
a. Clothing retail
b. Consumer automobiles
c. Job markets
d. Pharmaceuticals
e. Precious metals (gold, silver, etc.)
3. Characterize each of the following statements as either normative or positive:
a. Consumers spend more when their income increases.
b. Government should lower taxes to increase spending in the economy.
c. Businesses should pay higher wages to encourage workers to be more productive.
d. Wages will increase if there are only a few workers to fill many open jobs.
e. California spends more per student on public education than does Colorado.
f. Colorado should increase its education spending to improve child outcomes.
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Dr. Murasko
ECON 2302
4. For each of the following decisions and costs, state whether the cost should or should not be
part of the economic decision:
Decision:
Cost:
Should/Should not:
Staying to finish a bad movie.
Price already paid for a movie ticket.
Going to the movies.
Giving up a restaurant dinner.
Going on a beach vacation.
Giving up a mountain vacation.
Buying a new car.
Time already spent test driving.
Finish a class with no chance to pass.
Tuition that has been paid.
5. Identify each of the following as either a microeconomic issue or a macroeconomic issue:
a. A firm's decision of how many employees to hire for the next fiscal quarter
b. A government pursuing policy to influence its nation's inflation rate
c. A country's overall unemployment rate
d. An individual's decision of how many hours to work
e. The influence of a cigarette tax on smoking behavior
6. Identify opportunity costs for each of the following (you can list more than one for each
activity):
a. Working 40 hours per week
b. Going to a concert
c. Putting $500 into a savings account each month
d. A state government's annual spending on public education
e. A firm building a new manufacturing facility
7. Consider the following supply and demand model of the world tea market (quantities
expressed in billions of pounds):
Price/lb
$0.38
$0.37
$0.36
$0.35
$0.34
Quantity supplied
1,500
1,000
700
600
550
Quantity demanded
525
600
700
900
1,200
a. Is there a shortage of surplus when the price is $.38/lb? What about $.34/lb?
b. What is the equilibrium price and quantity?
c. Graph the demand and supply curves. Show the equilibrium price and quantity on your
graph.
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Dr. Murasko
ECON 2302
8. From the previous problem, suppose there is a drought in Sri Lanka that reduces the supply of
tea by 400 billion pounds. Assume that demand does not change.
a. Create a table for the new supply schedule for tea.
b. What is the new equilibrium price and quantity?
9. Consider the domestic market for honey. For each of the following cases, use a supply and
demand diagram to show what would happen to the equilibrium price and quantity for
domestic honey.
a. A medical journal publishes a study that shows honey can reduce the risk of certain
chronic illnesses.
b. A disease kills half the population of domestic honeybees.
c. The price of sugar cane increases.
d. A news report suggests that large quantities of domestic honey supply were contaminated
with E. Coli bacteria.
10. For each of the following markets and corresponding events, indicate whether the stated
change causes a shift in the supply or demand curves or a movement along the supply or
demand curves:
a. The housing market: consumer incomes decrease.
b. The camera market: the price of film increases.
c. The sugar market: a drought affects the sugar cane fields of Hawaii.
d. The milk market: the price of milk increases and the amount of milk people are willing to
buy declines.
e. The fast food market: the number a fast food restaurants decreases.
f. The ice cream market: the price of frozen yogurt falls.
11. Consider the US market for surgical heart services. Use a supply and demand diagram to
evaluate the predicted effect on price and quantity of heart surgery in the US:
a. The percentage of the population over 55 increases by 5%.
b. Schools grant more medical degrees.
c. The price of steel used in medical instruments increases.
d. Smoking prevalence in the US falls by 10%.
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