Advanced Microeconomics
Final Exam
Course Introduction
Advanced Microeconomics delves into the rigorous analysis of individual decision-making, market structures, and strategic interactions between agents. The course covers topics such as consumer and producer theory, general equilibrium, game theory, and information economics, with an emphasis on mathematical modeling and formal proofs. Students will explore the foundations of modern economic theory, analyze welfare implications of resource allocation, and examine how asymmetric information and uncertainty affect market outcomes. Through theoretical frameworks and real-world applications, the course equips students with the analytical skills necessary for research or advanced studies in economics.
Recommended Textbook
Microeconomics 2nd Edition by Daron
Acemoglu
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Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Which of the following statements is true?
A) Optimization requires individuals to foresee the future perfectly.
B) An optimizing individual need not consider the risks involved in various choices.
C) An optimizing individual is also likely to exhibit rationality.
D) The less information that is available, the easier it is to make optimal decisions.
Answer: C
Q2) Which of the following statements is true of equilibrium?
A) Economic agents have an incentive to divert from equilibrium.
B) Each economic agent can reach equilibrium irrespective of the actions of others.
C) In equilibrium, the opportunity cost of the choices made by each economic agent is zero.
D) In equilibrium, all economic agents are choosing the best feasible option simultaneously.
Answer: D
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3
Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) A survey recently indicated that being happy at work tends to make workers more productive.What can be a possible error of this conclusion?
Answer: The conclusion derived from the survey is likely to be a correlation rather than causation.In other words,saying that happiness causes workers to be productive can be a misleading conclusion.It is also likely that workers who are productive are happier,because they are performing better than their colleagues.There can be other explanations to being happy at work.For example,if the job provides workers a good match for their skills,they will be happy to use their skills,which will make them more productive.
Q2) Refer to the table above.What is the average monthly wage?
A) $450
B) $558
C) $612
D) $650
Answer: B
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4
Chapter 3: Optimization: Doing the Best You Can
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Q1) Refer to the scenario above.Which of the following is true if Sarah is optimizing using total value?
A) She will rent the hotel room for 3 days if the net benefit of staying for the third day is negative.
B) She will rent the hotel room for 3 days if the cost of staying for 2 days exceeds the cost of staying for 3 days.
C) She will rent the hotel room for 3 days if the net benefit of staying for 3 days exceeds the net benefit of staying for 2 days.
D) She will rent the hotel room for 3 days if the total benefit of staying for 3 days exceeds the total benefits of staying for 2 days.
Answer: C
Q2) If the ________ minus the ________ is positive,Project A is chosen over Project B.
A) cost of Project A; cost of Project B
B) net benefit of Project B; net benefit of Project A
C) net benefit of Project A; net benefit of Project B
D) total benefit of Project B; total benefit of Project A
Answer: C
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Page 5
Chapter 4: Demand, supply, and Equilibrium
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Sample Questions
Q1) Why is the competitive equilibrium price often referred to as the market clearing price?
Q2) Which of the following is not an example of a market?
A) A cattle auction, where farmers and ranchers bring cattle to be purchased by packing plants
B) Etsy.com, a Web site where artists, designers, and craftspersons offer items they have made to interested buyers
C) A city requires homeowners to pay $500 for putting in a sidewalk on their street
D) The National Residency Matching Program, where medical residents express their preferences for residencies, hospitals express their preferences for medical residents, and these preferences are used to match residents to residencies
Q3) An increase in the price of aviation fuel will cause which of the following for the supply of flights from New York to Los Angeles?
A) No change in supply, but an increase in quantity supplied
B) No change in supply, but a decrease in quantity supplied
C) An increase in supply
D) A decrease in supply
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6
Chapter 5: Consumers and Incentives
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Q1) Assume that an individual spends her income on sweaters and shirts.If the price of a sweater increases,________.
A) the opportunity cost of buying sweaters increases
B) the total benefit obtained from the purchase of shirts decreases
C) the opportunity cost of buying shirts increases
D) the marginal benefit obtained from the purchase of an additional unit of sweater increases
Q2) Which of the following formulas is used to calculate the "point" elasticity of demand?
A) Point elasticity of demand = [(Q Q )/(Q )]/[(P P )/(P )]
B) Point elasticity of demand = [(Q + Q )/(Q /2)]/[(P + P )/(P /2)]
C) Point elasticity of demand = [(Q Q )/(Q + Q )/2]/[(P P )/(P + P )/2]
D) Point elasticity of demand = [(Q Q )/(Q + Q )]/[(P P )/(P + P )]
Q3) Differentiate between the income effect and the substitution effect of a fall in the price of a good.
Q4) An optimizing consumer makes her purchase decisions based on ________.
A) the total benefits at various levels of consumption
B) the benefits per dollar spent at the margin
C) the total benefits per dollar spent at various levels of consumption
D) the benefits from the first dollar spent on consumption
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) Refer to the figure above.If the market price of the product is $3.25,what is the firm's revenue?
A) $3,900
B) $3,575
C) $2,700
D) $2,100
Q2) Differentiate between perfectly elastic supply and perfectly inelastic supply.
Q3) Is the producer surplus same as the profit?
A) Yes, they are the same, because the producer surplus is the sum of profits from each unit sold.
B) Yes, they are the same, because the profit is the revenue minus the sum of marginal costs of each unit sold.
C) No, they are different, because the profit is always at least the producer surplus.
D) No, they are different, because the producer surplus does not take into account the fixed cost.
Q4) When the price of a good is $100,50 units are supplied.When the price increases to $300,250 units are supplied.Calculate the price elasticity of supply of the good.
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Jack is a prospective buyer of a commodity that Jill is offering to sell.Social surplus in this scenario can be maximized when ________.
A) only Jack is optimizing
B) only Jill is optimizing
C) both Jack and Jill are optimizing
D) neither Jack nor Jill is optimizing
Q2) Which of the following statements is true?
A) imposes taxes only on goods with elastic demand curves
B) eliminates the excess burden of taxation
C) minimizes the excess burden for any given amount of tax revenue
D) does not redistribute wealth
Q3) Refer to the figure above.After the demand curve shifts to D ,if the price is held below the new equilibrium,then ________.
A) the quantity demanded will equal the quantity supplied
B) the quantity demanded will be greater than the quantity supplied
C) the quantity demanded will be less than the quantity supplied
D) there will be zero deadweight loss
Q4) What role does the invisible hand play when two firms are producing in the same competitive industry?
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Chapter 8: Trade
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Sample Questions
Q1) Refer to the figure above.Which of the following combinations is attainable as well as efficient?
A) B
B) C
C) D
D) E
Q2) Refer to the figure above.What is the value of B?
A) 1
B) 2
C) 3
D) 4
Q3) A(n)________ is any good that is produced domestically but sold abroad,and a(n)________ is any good that is produced abroad but sold domestically.
A) public good; private good
B) private good; public good
C) import; export
D) export; import
Q4) Even though points inside a production possibilities curve are attainable,why are they not preferred?
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Chapter 9: Externalities and Public Goods
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Q1) Refer to the figure above.The market price of Good Y is ________.
A) $10
B) $17
C) $22
D) $20
Q2) Pay-per-view broadcasts are ________.
A) public goods
B) private goods
C) club goods
D) common pool resource goods
Q3) An online newspaper is an example of a(n)________.
A) ordinary private good
B) common pool resource
C) public good
D) club good
Q4) A Pigouvian subsidy leads to a socially efficient outcome by ________.
A) raising individuals' marginal benefit from consumption
B) lowering firms' marginal private cost of production
C) lowering individuals' marginal benefit from consumption
D) lowering firms' marginal external cost of production
Page 11
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Q1) The equity-efficiency trade-off is best represented by ________.
A) a progressive tax system
B) a regressive tax system
C) the absence of government intervention
D) policies that achieve full efficiency and full consumer surplus
Q2) Which of the following is true in the United States?
A) Local governments cannot collect taxes.
B) Only state governments can collect taxes.
C) Only the federal government can collect taxes.
D) The central and local governments collect taxes.
Q3) Refer to scenario above.Suppose that,after the price ceiling is imposed,the seller serves customers on a first-come,first-served basis.This means that the seller's surplus depends on the order in which customers are served.What are the minimum and the maximum possible surpluses for the seller?
A) Minimum $0, maximum $12.00
B) Minimum $0.60, maximum $11.40
C) Minimum $1.80, maximum $11.00.
D) Minimum $2.75, maximum $9.25.
Q4) Why are private enterprises more efficient than government enterprises?
Q5) Differentiate between the average tax rate and the marginal tax rate.
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Chapter 11: Markets for Factors of Production
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Sample Questions
Q1) Refer to the scenario above.What is the profit-maximizing number of workers the orchard should hire?
A) 5
B) 10
C) 12
D) 14
Q2) Refer to the table above.If the rental price of machines is $140 per day,how many machines should the firm rent?
A) 2
B) 3
C) 4
D) 5
Q3) Which of the following correctly identifies the characteristics of land and capital?
A) Land and capital can both be rented and owned.
B) Land is rented, whereas capital is owned.
C) Land can be owned or rented, whereas capital can only be owned by a firm.
D) Capital can be owned or rented by a firm, whereas land can only be owned by a firm.
Q4) Differentiate between taste-based discrimination and statistical discrimination.
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Chapter 12: Monopoly
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Sample Questions
Q1) Refer to the scenario above.If the marginal cost of a magic wand is $10,how many wands should Mr.Olivander sell to maximize his profit?
A) 5
B) 9
C) 12
D) 1
Q2) If a monopoly engages in first-degree price discrimination,________.
A) social surplus is maximized
B) consumer surplus is maximized
C) producer surplus is minimized
D) deadweight loss is maximized
Q3) Marginal revenue is less than the price for a monopolist because ________.
A) a monopolist must lower its price to sell another unit of output
B) the firm sets the price
C) there are no close substitutes for the firm's product
D) none of the above
Q4) What are the problems associated with price regulation?
Q5) What are the different types of price discrimination?
Q6) Differentiate between a patent and a copyright.
Q7) Differentiate between a socially optimal price and a fair-returns price.
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) Refer to the scenario above.What is the equilibrium outcome in this case?
A) Both firms choosing Strategy 2
B) Both firms choosing Strategy 1
C) Row Inc. choosing Strategy 1 and Colm Inc. choosing Strategy 2
D) Colm Inc. choosing Strategy 1 and Row Inc. choosing Strategy 2
Q2) Refer to the scenario above.If the interaction between the employer and the worker is to be repeated for many periods in future,the equilibrium of this game is ________.
A) when the employer doesn't trust the worker
B) when the employer trusts the worker, and the worker works faithfully
C) when the employer trusts the worker, and the worker shirks
D) nonexistent
Q3) Refer to the scenario above.Which of the following will happen in equilibrium?
A) Firm A will choose Strategy X, and Firm B will choose Strategy Y.
B) Firm A will choose Strategy Y, and Firm B will choose Strategy X.
C) Both the firms will choose Strategy X.
D) Both the firms will choose Strategy Y.
Q4) What is a zero-sum game? Explain with an example.
Q5) How does a dominant strategy equilibrium occur in a simultaneous-move game?
Q6) Differentiate between a payoff matrix and a game tree.
Page 15
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) The IT industry in Argonesia has a Herfindahl-Hirschman Index of 1,320.This implies that the IT industry in Argonesia is ________.
A) not concentrated
B) moderately concentrated
C) highly concentrated
D) dominated by a few large buyers
Q2) In a duopoly with homogeneous products,the best response of a firm is to charge a lower price than its rival as long as ________.
A) the rival's price is above marginal cost
B) the rival's price is below marginal cost
C) the rival's price is above average cost
D) the rival's price is below average cost
Q3) Social surplus is maximized in a(n)________.
A) perfectly competitive market
B) monopolistically competitive market
C) monopoly market
D) oligopoly market
Q4) Why does a monopolistic competitor earn zero economic profits in the long run?
Q5) What does the term "undercutting" refer to?
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Chapter 15: Trade-Offs Involving Time and Risk
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Sample Questions
Q1) George is offered an investment option by his friend.He asks George for $6,900 and offers to repay $12,990 to him after a period of 10 years.George considers investing his money in his friend's project; however,the bank in his community offers an annual rate of interest of 9 percent on every deposit.Which do you think is the better investment option for George?
Q2) Refer to the scenario above.What is the expected value of the game?
A) $15.64
B) $27
C) $33.33
D) $35.75
Q3) The ________ is referred to as future value.
A) product of interest payments and principal
B) ratio of interest payments to principal
C) ratio of principal to interest payments
D) sum of interest payments and principal
Q4) Which of the following is most likely to reduce an individual's future spending?
A) Withdrawing money today
B) Lending money today
C) Paying back a loan in the future
D) Withdrawing money in the future
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Chapter 16: The Economics of Information
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Sample Questions
Q1) More people started building houses in the earthquake-prone regions of Polonia after its government launched a compensation scheme for houses damaged in earthquakes in these regions.This is an example of ________.
A) adverse selection
B) a positive externality
C) moral hazard
D) herd behavior
Q2) Refer to the scenario above.How much should he pay for the painting if he thinks that there is a 70 percent chance that the painting he is buying is original?
A) $50,000
B) $35,000
C) $70,000
D) $15,000
Q3) A firm is likely to pay high efficiency wages when ________.
A) it is easy to monitor workers
B) it is not easy to monitor workers
C) there is excess supply of labor in the labor market
D) the minimum wages are set above the equilibrium wage rate
Q4) Distinguish between two kinds of asymmetric information.
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Chapter 17: Auctions and Bargaining
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Sample Questions
Q1) Robert is participating in a Dutch auction.If he values the item being auctioned at $5,500 and there are five bidders in total,what should Robert's optimal bidding strategy be?
Q2) According to the ________,as long as property rights are clearly defined,two agents can always bargain to reach the efficient outcome.
A) Coase theorem
B) Ricardian theory on rent
C) revenue equivalence theorem
D) envelope theorem
Q3) Refer to the scenario above.The seller will earn a revenue of ________.
A) $45,000
B) $40,500
C) $5,000
D) $4,500
Q4) Who has a higher bargaining power if the demand for the good being transacted is price elastic?
Q5) What is the drawback of a bidder bidding up to his or her willingness to pay for a good in a Dutch auction?
Q6) What is the reason for the popularity of auctions among consumers?
Page 19
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Chapter 18: Social Economics
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Sample Questions
Q1) A teacher tells her students that she will give them a riddle that each student has to solve separately.Each student has to then announce his or her answer in the class.Those who get the correct answer will get a gift.Kate,a student in the class,decides to give the answer that most students give,although the answer she gets from solving the riddle is quite different.This is an example of ________.
A) adverse selection
B) moral hazard
C) a pecuniary externality
D) an information cascade
Q2) Beth has moved into a new house.Most people living in her neighborhood go for a jog early in the morning.Although Beth had always been a late riser,she has started getting up early for a jog after moving into her new house.This is an example of
A) moral hazard
B) adverse selection
C) a peer effect
D) a negative externality
Q3) Why is the equilibrium in a trust game socially inefficient?
Q4) Why do people donate less when it is costlier to give?
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