Advanced Microeconomic Theory
Exam Questions
Course Introduction
Advanced Microeconomic Theory delves into the rigorous analytical foundations of microeconomics, building upon core concepts such as consumer and producer theory, general equilibrium, and game theory. The course emphasizes mathematical modeling and formal proof techniques to explore market behavior, information asymmetry, welfare analysis, and strategic interactions among agents. Students examine advanced topics including mechanism design, contract theory, externalities, public goods, and market failure, gaining tools to analyze complex economic scenarios and formulate precise economic arguments relevant for academic research and policy applications.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 12th Edition by Walter Nicholson
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17 Chapters
356 Verified Questions
356 Flashcards
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Page 2
Chapter 1: Preferences and Utility
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Sample Questions
Q1) If an individual's utility function is quasi-concave,his or her MRS will:
A)diminish as x is substituted for y.
B)increase as x is substituted for y.
C)be undefined except in special cases.
D)always depend only on the ratio of x to y.
Answer: A
Q2) With this utility function,the bundle (3,2)provides the same utility as the bundle: A)(2,3).
B)(2,4).
C)(2,5).
D)(3,3).
Answer: B
Q3) If bundles of goods A and B lie on the same indifference curve,one can assume the individual:
A)prefers bundle A to bundle B
B)prefers bundle B to bundle A.
C)enjoys bundle A and B equally.
D)bundle A contains the same goods as bundle B.
Answer: C
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Page 3
Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) If an individual's indifference curve map does not obey the assumption of a diminishing MRS,then:
A)the individual will not maximize utility.
B)the individual will buy none of good x.
C)tangencies of indifference curves to the budget constraint may not be points of utility maximization.
D)the budget constraint cannot be tangent to an appropriate indifference curve.
Answer: C
Q2) The slope of the budget constraint line is:
A)the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
B)the negative of the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
C)the ratio of income divided by price of y (I/p<sub>y</sub>).
D)none of the above.
Answer: B
Q3) An increase in an individual's income without changing relative prices will:
A)rotate the budget constraint about the X-axis.
B)shift the indifference curves outward.
C)shift the budget constraint outward in a parallel way.
D)rotate the budget constraint about the Y-axis.
Answer: C
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Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) An individual's demand curve:
A)represents the various quantities that a consumer is willing to purchase of a good at various price levels.
B)is derived from an individual's indifference curve map.
C)will shift if preferences,prices of other goods,or income change.
D)all of these answers are correct.
Answer: D
Q2) Which of the following will not cause a demand curve to shift position?
A)A doubling of the good's price
B)A doubling of the price of a closely substitutable good
C)A doubling of income
D)A shift in preferences
Answer: A
Q3) If income doubles and the quantity demanded of good x more than doubles,then good x can be described as a:
A)substitute good.
B)complement good.
C)necessity.
D)luxury.
Answer: D
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Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) Quasi-concavity of utility functions insures that with only two goods,these goods must be:
A)gross substitutes.
B)gross complements.
C)net substitutes.
D)net complements.
Q2) For the Cobb-Douglas utility function with two goods,the sum of the own price elasticities of demand must be:
A)0.
B)-1.
C)-2.
D)any number between 0 and -4.
Q3) If goods x and y are complements,then the cross price elasticity of demand between them will be:
A)positive.
B)negative.
C)zero.
D)infinity.
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6
Chapter 5: Uncertainty
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Sample Questions
Q1) If a fair game is played many times the monetary losses or gains will:
A)approach zero.
B)be negative.
C)be positive.
D)result in an outcome that cannot be determined without more information.
Q2) Risk aversion is best explained by:
A)timidness.
B)increasing marginal utility of wealth.
C)constant marginal utility of wealth.
D)decreasing marginal utility of wealth.
Q3) What property of the von-Neumann Morgenstern utility function is related to risk aversion?
A)Its upward slope
B)Its downward slope
C)Its convexity
D)Its concavity
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Chapter 6: Game Theory
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Sample Questions
Q1) The difference between a Nash equilibrium and a subgame-perfect equilibrium is:
A)the former requires rational play both on and off the equilibrium path but the latter requires rational play only on the equilibrium path.
B)the former requires rational play only on the equilibrium path but the latter requires rational play both on and off the equilibrium path.
C)Nash equilibria are a subset of the subgame-perfect equilibria.
D)nothing;they are synonyms.
Q2) A subgame-perfect equilibrium:
A)is not a Nash equilibrium;it is a refinement of Nash equilibrium.
B)is an equilibrium concept used in simultaneous games.
C)is a special sort of Nash equilibrium.
D)can be ruled out using backward induction.
Q3) Nash equilibria:
A)always exist in pure strategies.
B)generally come in even numbers.
C)always exist in finite games.
D)all of the above.
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Chapter 7: Production Functions
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Sample Questions
Q1) Graphically,the average productivity of labor is illustrated by:
A)the slope of the total product curve at the relevant point.
B)the slope of the marginal productivity curve at the relevant point.
C)the negative of the slope of the marginal productivity curve at the relevant point.
D)the slope of the chord connecting the origin with the relevant point on the total output curve.
Q2) A firm's isoquant shows:
A)the amount of labor needed to produce a given level of output with capital held constant.
B)the amount of capital needed to produce a given level of output with labor held constant.
C)the various combinations of capital and labor that will produce a given amount of output.
D)none of the above.
Q3) The average productivity of labor reaches its maximum:
A)at the point of inflection of the total product curve.
B)where the slope of the total product curve is steepest.
C)where the slope of the total product curve is zero.
D)where marginal and average productivity are equal.
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Page 9
Chapter 8: Cost Functions
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Sample Questions
Q1) The expansion path for a homothetic production function:
A)is a straight line through the origin with a slope greater than one if w > v.
B)is a straight line through the origin with a slope less than one if w < v .
C)is a straight line through the origin though its slope cannot be determined by w and v alone.
D)has a positive slope but is not necessarily a straight line.
Q2) A firm's economic profits are given by:
A)total revenue minus total accounting cost.
B)the owner's opportunity cost.
C)total revenue minus total economic cost.
D)total revenue minus the cost of capital.
Q3) For a constant returns to scale production function:
A)marginal costs are constant but the average cost curve has a U-shape.
B)both average and marginal costs are constant.
C)marginal cost has a U-shape;average costs are constant.
D)both average and marginal cost curves are U-shaped.
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Chapter 9: Profit Maximization
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Sample Questions
Q1) If the price of an input falls,a firm would increase the use of that input for two reasons:
A)the input is now more productive,and the firm can substitute this input for other relatively more expensive inputs.
B)the input is now more productive,and overall production costs are now lower,meaning a firm may choose to increase production.
C)overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs.
D)overall production costs are now lower and the firm will have more of other inputs to use with the one in question.
Q2) If demand facing the firm is price-inelastic,marginal revenue will be:
A)positive.
B)zero.
C)negative.
D)constant.
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Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) In the short run,a sales tax is:
A)wholly absorbed by the producer.
B)shared between the consumer and the producer.
C)deferred until the market is able to re-establish an equilibrium price.
D)wholly absorbed by the consumer.
Q2) For an increasing cost industry,the long-run supply curve has a(n)_____ elasticity of supply.
A)infinite
B)negative
C)positive
D)zero
Q3) In the very short run:
A)new firms may enter an industry.
B)existing firms may change the quantity they are supplying.
C)price and quantity supplied are absolutely fixed.
D)quantity supplied is absolutely fixed.
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12
Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) In an economy consisting of only two goods,corn and cloth,the amount of extra cloth that can be produced efficiently if corn output is reduced by one unit is equal to:
A)the rate of technical substitution for corn divided by the rate of technical substitution for cloth.
B)the rate of technical substitution for cloth divided by the rate of technical substitution for corn.
C)the marginal cost of producing cloth divided by the marginal cost of producing corn.
D)the marginal cost of producing corn divided by the marginal cost of producing cloth.
Q2) In volatile markets,"speculators" would be expected to provide some stability because:
A)they will be required to do so by the government.
B)they will use current price moves to predict future moves.
C)they will buy when price is below equilibrium and sell when it is above equilibrium.
D)they will buy when price is above equilibrium and sell when it is below equilibrium.
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Chapter 12: Monopoly
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Sample Questions
Q1) Perfect (first degree)price discrimination:
A)is a common occurrence in situations with many buyers.
B)occurs fairly often in situations with only a few buyers.
C)is only observed in competitive markets.
D)rarely occurs because firms do not have sufficient information to differentiate among specific buyers.
Q2) The "deadweight loss" from a monopoly refers to:
A)the portion of a monopolist's profits that are above the competitive profit level.
B)the increase in price due to the monopolization of a market.
C)the inefficient use of factors of production by a monopoly.
D)the loss of consumer surplus due to the monopolization of a market that is not transferred to another economic actor.
Q3) All monopolies exist because of:
A)firms' desire to maximize profits.
B)failure of antitrust laws.
C)barriers to entry.
D)natural selection.
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14
Chapter 13: Imperfect Competition
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Sample Questions
Q1) A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:
A)additional sales.
B)reduced costs.
C)increased profits.
D)demand.
Q2) In the Hotelling model of spatial competition,profits arise from:
A)monopoly power.
B)rents based on locational advantage.
C)the ability to price discriminate.
D)increasing returns to scale.
Q3) Which feature of a market would contribute most to overall social welfare?
A)Low prices and high outputs
B)Reduction in costs due to technological improvements
C)The invention of new products
D)Difficult to weigh a,b,and c without further information about society's preferences
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Chapter 14: Labor Markets
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Sample Questions
Q1) The fact that more women have chosen to work as real wages rise is evidence that,for them:
A)leisure is an inferior good.
B)income and substitution effects of higher real wages work in the same direction.
C)income and substitution effects of higher real wages may work in opposite directions.
D)income and substitution effects may work in opposite directions but that the substitution effect is stronger.
Q2) When an individual's wage rises,the substitution effect tends to:
A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)an impossible prediction about what will happen to hours worked.
Q3) The opportunity cost of leisure is approximated by:
A)the price of leisure activities (such as theater tickets).
B)an individual's hourly real wage rate.
C)commuting expense.
D)an individual's total income.
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Chapter 15: Capital and Time
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Sample Questions
Q1) A rise in interest rates leads to:
A)an increase in the PDV of profits from owning a machine.
B)a decrease in the PDV of profits from owning a machine.
C)offsetting the effects on the costs and benefits of owning a machine.
D)no effect on either the costs or benefits of owning a machine.
Q2) The annual rental rate for a machine is:
A)the yearly depreciation and maintenance costs for the machine.
B)the yearly interest costs associated with owning the machine.
C)the initial purchase price of the machine divided by the number of years the machine is expected to last.
D)the sum of the yearly depreciation,maintenance,and interest costs associated with owning the machine.
Q3) In Fisher's model of the determination of the rate of return,the price of a "future good" is:
A)less than the price of a current good if the interest rate is negative.
B)equal to the price of a current good if the interest rate is positive.
C)greater than the price of a current good if the interest rate is positive.
D)less than the price of a current good if the interest rate is positive.
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17
Chapter 16: Asymmetric Information
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Sample Questions
Q1) Which contracting party gains from the use of a more sophisticated contract?
A)The principal,who offers the contract.
B)The agent,who accepts the contract.
C)Both parties may lose.
D)Both parties gain equally.
Q2) What tradeoffs are present in the moral-hazard-in-insurance problem?
A)Full insurance benefits the risk-averse customer but gives him excessive incentives to take care to avoid harm.
B)Full insurance benefits the risk-averse customer but provides him with no incentive to take care to avoid harm.
C)Full insurance benefits the risk-averse consumers but does not allow the insurer to extract as much surplus from all types.
D)Full insurance is beneficial for all consumers,but if sold at an actuarially fair price for the population will draw only the riskiest types.
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Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be:
A)the firm's marginal cost.
B)the social marginal cost.
C)the difference between the social marginal cost and the firm's marginal cost.
D)the sum of the social marginal cost and the firm's marginal cost.
Q2) Consider four possible benefits of a water resources project:
I.Provides employment to construction workers currently building houses.
II.Provides electric power to the market.
III.Provides reduced flood risk to individuals living along the river.
IV.Raises the profits of MacDonald's stands in the area which serves construction workers.
Which of these are true social benefits of the project?
A)All of them
B)I,II,and III,but not IV
C)I and III,but not II and IV
D)II and III,but not I and IV
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