Below are several original revision test questions—with complete answers and
detailed rationale—that are inspired by the core concepts found in Mankiw’s
Essentials of Economics, 10th Edition. They are designed to help reinforce
understanding of key topics and are not reproduced from any copyrighted
solutions manual. You can use these tests to check your grasp of the material
and to guide further study.
Revision Test 1: Supply and Demand Dynamics
Question:
Suppose the market for coffee experiences an unexpected frost that damages coffee crops. At the same
time, a new study finds that moderate coffee consumption improves health. What is the likely combined
effect on the equilibrium price and quantity?
A. Price rises; Quantity rises
B. Price rises; Quantity falls
C. Price falls; Quantity falls
D. Price is unchanged; Quantity rises
Answer:
A. Price rises; Quantity rises
Rationale:
Supply Side: A frost damages coffee crops, reducing supply (shift leftward), which tends to
increase price and reduce quantity.
Demand Side: The study enhances coffee’s reputation, shifting demand rightward, increasing
both price and quantity.
Combined Effect: With both effects pushing the price upward, the net change in quantity
depends on the relative magnitude of the shifts. In many cases (if the demand increase is strong
enough to more than offset the supply contraction), quantity will rise along with price. (Note: In
some circumstances, if the supply reduction were overwhelming, quantity could fall. However,
given the phrasing, answer A is most consistent with the scenario.)
Revision Test 2: Price Elasticity of Demand
Question:
If the price elasticity of demand for movie tickets is –0.6, what happens to total revenue when the price
increases?
A. Total revenue decreases
B. Total revenue remains unchanged
C. Total revenue increases
D. Cannot be determined from the given information
, Answer:
C. Total revenue increases
Rationale:
Elasticity Interpretation: An elasticity of –0.6 (in absolute value less than 1) means demand is
inelastic.
Revenue Effect: When demand is inelastic, an increase in price leads to a smaller percentage
decrease in quantity demanded, so total revenue (price × quantity) increases.
Revision Test 3: Measuring GDP
Question:
Which of the following is included in the calculation of a country’s Gross Domestic Product (GDP)?
A. The sale of used cars
B. Intermediate goods used in production
C. Final goods produced and sold during the year
D. Transfer payments such as social security benefits
Answer:
C. Final goods produced and sold during the year
Rationale:
GDP Definition: GDP measures the total market value of all final goods and services produced
within a country during a given period.
Exclusions:
o Used cars (A) are not counted because they were recorded when first sold.
o Intermediate goods (B) are excluded to avoid double counting.
o Transfer payments (D) do not reflect production of new goods or services.
Revision Test 4: Fiscal Policy Effects
Question:
Which of the following is an example of expansionary fiscal policy?
A. Increasing government spending on infrastructure
B. Raising taxes to lower the budget deficit
C. Increasing the federal funds rate
D. Restricting the money supply
Answer:
A. Increasing government spending on infrastructure
detailed rationale—that are inspired by the core concepts found in Mankiw’s
Essentials of Economics, 10th Edition. They are designed to help reinforce
understanding of key topics and are not reproduced from any copyrighted
solutions manual. You can use these tests to check your grasp of the material
and to guide further study.
Revision Test 1: Supply and Demand Dynamics
Question:
Suppose the market for coffee experiences an unexpected frost that damages coffee crops. At the same
time, a new study finds that moderate coffee consumption improves health. What is the likely combined
effect on the equilibrium price and quantity?
A. Price rises; Quantity rises
B. Price rises; Quantity falls
C. Price falls; Quantity falls
D. Price is unchanged; Quantity rises
Answer:
A. Price rises; Quantity rises
Rationale:
Supply Side: A frost damages coffee crops, reducing supply (shift leftward), which tends to
increase price and reduce quantity.
Demand Side: The study enhances coffee’s reputation, shifting demand rightward, increasing
both price and quantity.
Combined Effect: With both effects pushing the price upward, the net change in quantity
depends on the relative magnitude of the shifts. In many cases (if the demand increase is strong
enough to more than offset the supply contraction), quantity will rise along with price. (Note: In
some circumstances, if the supply reduction were overwhelming, quantity could fall. However,
given the phrasing, answer A is most consistent with the scenario.)
Revision Test 2: Price Elasticity of Demand
Question:
If the price elasticity of demand for movie tickets is –0.6, what happens to total revenue when the price
increases?
A. Total revenue decreases
B. Total revenue remains unchanged
C. Total revenue increases
D. Cannot be determined from the given information
, Answer:
C. Total revenue increases
Rationale:
Elasticity Interpretation: An elasticity of –0.6 (in absolute value less than 1) means demand is
inelastic.
Revenue Effect: When demand is inelastic, an increase in price leads to a smaller percentage
decrease in quantity demanded, so total revenue (price × quantity) increases.
Revision Test 3: Measuring GDP
Question:
Which of the following is included in the calculation of a country’s Gross Domestic Product (GDP)?
A. The sale of used cars
B. Intermediate goods used in production
C. Final goods produced and sold during the year
D. Transfer payments such as social security benefits
Answer:
C. Final goods produced and sold during the year
Rationale:
GDP Definition: GDP measures the total market value of all final goods and services produced
within a country during a given period.
Exclusions:
o Used cars (A) are not counted because they were recorded when first sold.
o Intermediate goods (B) are excluded to avoid double counting.
o Transfer payments (D) do not reflect production of new goods or services.
Revision Test 4: Fiscal Policy Effects
Question:
Which of the following is an example of expansionary fiscal policy?
A. Increasing government spending on infrastructure
B. Raising taxes to lower the budget deficit
C. Increasing the federal funds rate
D. Restricting the money supply
Answer:
A. Increasing government spending on infrastructure
