Applied Microeconomics
Exam Answer Key
Course Introduction
Applied Microeconomics explores the practical application of microeconomic principles to real-world problems and decision-making processes faced by individuals, firms, and governments. The course covers core concepts such as consumer behavior, production and cost analysis, market structures, pricing strategies, and the role of government intervention in markets. Through case studies, empirical analysis, and policy evaluation, students learn how economic models can be utilized to inform business strategies, public policies, and resource allocation. Emphasis is placed on interpreting and analyzing data to solve contemporary economic issues, fostering quantitative reasoning and critical thinking skills essential for careers in economics, business, and public administration.
Recommended Textbook
Microeconomics 10th Edition by Stephen Slavin
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Chapter 1: A Brief Economic History of the United States
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Sample Questions
Q1) In the 1980s, the U.S. had recessions in ________ and _________.
Answer: 1980; 1981-1982
Q2) Which statement is false?
A)During the 19th century the main cash crops grown in the South were cotton, rice, sugar, and tobacco.
B)The only real economic conflict between the North and the South before the Civil War was over slavery.
C)It took most parts of the South about a century to recover economically from the effects of the Civil War.
D)Southern agriculture developed very differently from agriculture in other regions of the nation.
Answer: B
Q3) The South's economy was based on production of A)iron, steel and textiles.
B)corn, wheat and soybeans.
C)tobacco, cotton and rice.
D)iron, wheat and cotton.
Answer: C
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3
Chapter 2: Resource Utilization
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Sample Questions
Q1) If the economy were producing at point C and moves to point B
A)4 units of capital goods are gained, while the capacity to produce 32 consumer goods are lost.
B)16 units of capital goods are gained at an opportunity cost of producing 40 consumer goods.
C)16 units of capital goods are gained at an opportunity cost of producing 72 consumer goods.
D)4 units of capital goods are gained, while the capacity to produce 72 consumer goods are lost.
Answer: A
Q2) If you own a building and you decide to use that building to open a restaurant,
A)there are no sunk costs involved in this decision.
B)there is no opportunity cost of using this building for a restaurant because you own it.
C)the only cost relevant to this decision is the price you paid for the building.
D)there is an opportunity cost of using this building for a restaurant because it could have been used in other ways.
Answer: D
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Page 4
Chapter 3: The Mixed Economy
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Sample Questions
Q1) According to most economists, which one of the following would be the best public policy?
A)Require businesses to reduce pollution by a level prescribed by the government.
B)Zero tolerance for pollution.
C)Rely on private enterprise to reduce pollution as it is ultimately in its best interest.
D)Provide business firms with incentives to curb their pollution.
Answer: D
Q2) An external benefit occurs when
A)some of the benefits derived from the production or consumption of some good or service are enjoyed by a third party.
B)the production or consumption of some good or service inflicts costs on a third party without compensation.
C)private costs exceed social costs.
D)private benefits exceed private benefits.
Answer: A
Q3) National defense is an example of a ____________________.
Answer: public good
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Chapter 4: Supply and Demand
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Sample Questions
Q1) If the government set a price floor at $8
A)there would be a temporary surplus, then prices would fall to equilibrium.
B)there would be a permanent surplus, at least until the price floor was lifted.
C)the price would rise back to the equilibrium price.
D)the price floor would not have any effect on this market.
Q2) When price is $2
A)there is a surplus.
B)there is a shortage.
C)quantity demanded is less than quantity supplied.
D)price must fall to get to equilibrium.
Q3) The supply curve displays the wishes of _____________.
Q4) If price were $190, there would be a _____ (shortage or surplus) of _____.
Q5) There is a shortage of quantity demanded over quantity supplied when
A)market price is above equilibrium price.
B)market price equals equilibrium price.
C)market price is below equilibrium price.
Q6) If demand rises, what happens to equilibrium price and quantity?
Q7) If price were $6, there would be a (shortage or surplus) _____ of _____.
Page 6
Q8) _____ is the charging of "an unconscionable or exorbitant rate of interest."
Q9) Equilibrium quantity is _____.
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Chapter 5: Demand, Supply, and Equilibrium
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Sample Questions
Q1) A move from G to H represents
A)an increase in quantity demanded.
B)a decrease in quantity demanded.
C)an increase in demand.
D)a decrease in demand.
Q2) A shift in the supply curve for gasoline in the United States would result if
A)magnet-lift trains, that were capable of going 300-miles-per-hour, were built connecting all major cities in the America.
B)the price of gasoline decreased.
C)a new method for drilling through rock opened up vast new oil reserves in Wyoming.
D)electric cars became inexpensive and popular.
Q3) A rightward shift of the entire demand curve
A)is an decrease in demand.
B)might be due to an increase in the income of consumers who buy the product.
C)might be due to a tax reduction on the product.
D)All of these choices are true.
Q4) A decrease in supply is shown graphically by a shift of the supply curve to the _______.
Q5) At equilibrium, price ________ is equal to ________.
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Chapter 6: The Price Elasticities of Demand and Supply
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Sample Questions
Q1) If consumers are price sensitive, then
A)they will have elastic demand curves.
B)they will have inelastic demand curves.
C)they will have no demand curve.
D)they will not shop around very much.
E)they likely perceive no close substitutes.
Q2) If the elasticity for yachts is three, a tax on yachts will ___________ total revenue.
Q3) If demand is unit elastic a small increase in price will
A)raise total revenue.
B)lower total revenue.
C)not change total revenue.
Q4) The elasticity of a perfectly horizontal line is _______; the elasticity of a perfectly vertical line is ____.
Q5) About how much of the tax is paid by consumers in the form of higher prices?
A)2 cents
B)8 cents
C)12 cents
D)18 cents
E)20 cents
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Chapter 7: Theory of Consumer Behavior
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Sample Questions
Q1) If you received a free month's trial membership in a gym, you would keep going until your marginal utility reached
A)a maximum.
B)zero.
C)a positive number.
D)a negative number.
Q2) Given the demand curve in this graph, if price were $2.00, how much quantity would be purchased?
A)1 unit
B)2 units
C)3 units
D)4 units
Q3) If a person consumes excessive amounts of a good or service, to the point that their total utility actually begins declining, then that person's marginal utility of the last unit consumed is _________.
A)positive
B)negative
C)zero
D)None of these choices are correct.
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Page 10
Chapter 8: Cost
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Sample Questions
Q1) The time at which all costs become variable costs is called the ___________.
Q2) Which statement is true?
A)The marginal cost curve intersects both the average variable cost curve and the average total cost curve at their minimum points.
B)The marginal cost curve intersects neither the average variable cost curve nor the average total cost curve at their minimum points.
C)The marginal cost curve intersects the average variable cost curve at its minimum point, but it does not intersect the average total cost curve at its minimum point.
D)The marginal cost curve intersects the average total cost curve at its minimum point, but it does not intersect the average variable cost curve at its minimum point.
Q3) At an output of zero, total cost = _______________.
Q4) Fuel and shipping costs are examples of __________ costs.
Q5) The word economists use when referring to "additional" or "incremental" units of output or costs is _________.
Q6) As output rises, the difference between AVC and ATC gets _____.
Q7) Draw a graph of AVC, ATC, and MC.
Q8) The shutdown decision is made in the _______________.
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Chapter 9: Profit, Loss, and Perfect Competition
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Sample Questions
Q1) If the price were $75, how much would the firm's output be in the short run?
Q2) How much is the firm's loss per unit of output?
Q3) Under perfect competition all sellers sell a(n) ___________ product.
Q4) In the long run if the price is below average total cost, the firm will A)go out of business.
B)stay in business.
C)temporarily shut down.
D)None of the choices are correct.
Q5) In the long run a perfect competitor will
A)maximize profits and operate at peak efficiency.
B)maximize profits and not operate at peak efficiency.
C)not maximize profits or operate at peak efficiency.
D)not maximize profits but will operate at peak efficiency.
Q6) The firm's break-even point occurs at an output of A)100. B)150. C)215. D)300.
Q7) A firm that accepts the price as determined by industry supply and demand is called a ______.
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Chapter 10: Monopoly
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Sample Questions
Q1) Natural monopolies are monopolies that are based on A)patents.
B)control over a strategic natural resource.
C)extensive economies of scale in production.
D)copyrights.
Q2) When an industry is a natural monopoly
A)the economies of scale in it are very great.
B)it would be most efficient to have several (or many) firms competing to supply the market.
C)it has a perfectly elastic industry demand curve.
D)the typical firm's marginal cost curve is everywhere above its average cost curve.
Q3) If marginal cost were $22, how many units of output would this firm produce?
Q4) If the firm were a perfect competitor, how much would its price be in the long run?
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Chapter 11: Monopolistic Competition
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Sample Questions
Q1) If this firm produced at its most efficient output level it would produce _______ units.
A)70
B)80
C)90
D)100
Q2) The demand curve for monopolistic competitive firms is
A)slightly elastic because there are few substitutes for the product.
B)slightly elastic because there are many substitutes for the product.
C)very elastic because there are few substitutes for the product.
D)very elastic because there are many substitutes for the product.
Q3) The monopolistic competitor
A)produces a good or service that has no close substitutes.
B)is usually a small firm.
C)has very little competition.
D)is protected by substantial barriers to entry.
Q4) You could conclude that
A)new firms will enter the industry.
B)existing firms will leave the industry.
C)the industry is in the long run.
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Chapter 12: Oligopoly
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Sample Questions
Q1) ___________ prices are set by large corporations for relatively long periods of time.
Q2) A Herfindahl-Hirschman Index of 10,000 would mean there is (are) _____ firm(s) in the industry.
Q3) Which statement is true?
A)Industry X is more concentrated than Industry Y.
B)Industry Y is more concentrated than Industry Z.
C)Industry Z is more concentrated than Industry X.
D)Industries X, Y, and Z have the same concentration ratio.
Q4) Which statement is true?
A)Collusion is most likely in industries with high concentration ratios.
B)Collusion is most likely in industries with low concentration ratios.
C)There is no relationship between the likelihood of collusion and the size of the concentration ratio.
Q5) The highest concentration ratio
A)is in Industry X.
B)is in Industry Y.
C)is in Industry Z.
D)cannot be determined.
Q6) An industry with just a few sellers is a(n) __________.
Page 15
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Chapter 13: Corporate Mergers and Antitrust
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Sample Questions
Q1) The largest merger in American corporate history was between _____ and _______.
Q2) In the American Tobacco and Standard Oil cases, the Supreme Court
A)prohibited monopoly per se.
B)prohibited certain illegal tactics.
C)applied the rule of reason.
D)had the government take over the oil and tobacco industries.
Q3) Combinations in restraint of trade are prohibited by
A)the Sherman Act.
B)the Clayton Act.
C)the Federal Trade Commission Act.
Q4) Which statement is true?
A)The largest merger in history involved Chase Manhattan Bank.
B)There have been only two mergers in our entire history valued at over $15 billion.
C)It is illegal under our antitrust laws for two firms in the same industry to merge.
D)None of these statements are true.
Q5) Exxon, Mobil, and Amoco are all descendants of the ___________ trust.
Q6) Interlocking directorates and tying contracts were outlawed under the ___________ Act.
Page 16
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Chapter 14: Demand in the Factor Market
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Sample Questions
Q1) A rise in the wage rate would lead to a movement
A)down the MRP curve and a rise in the number of workers hired.
B)down the MRP curve and a decline in the number of workers hired.
C)up the MRP curve and a decline in the number of workers hired.
D)up the MRP curve and a rise in the number of workers hired.
Q2) If land and capital are complementary resources and the price of land goes down, the employment of capital _____.
Q3) The substitution effect and the output effect work in the
A)same direction some of the time.
B)same direction all of the time.
C)opposite direction some of the time.
D)opposite direction all of the time.
Q4) In a perfectly competitive labor market, when a firm hires more labor
A)wages will increase.
B)wages will decrease.
C)wages will remain the same.
Q5) As the price of washing machines fell, tens of millions of housewives substituted _______ for ______.
Q6) When the productivity of a resource declines, its ________ and its _________ also declines.
Page 17
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Chapter 15: Labor Unions
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Sample Questions
Q1) A union composed of members with the same trade or occupation is called
A)an industrial union.
B)a trade association.
C)a government union.
D)a craft union.
Q2) At its peak labor union membership was about _____% of the labor force.
A)15
B)25
C)35
D)45
E)55
Q3) A secondary boycott is directed against ___________.
Q4) If large employers could repeal one law, it would be the _____.
Q5) Which statement is true?
A)Most strikes cause serious economic disruptions.
B)The threat of a strike provides the motivation necessary to make collective bargaining work.
C)Most labor unions enter collective bargaining hoping for a strike.
D)None of the choices are true.
Q6) ______% of Wal-Mart employees are union members.
Page 18
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Chapter 16: Labor Markets and Wage Rates
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Sample Questions
Q1) If the legal minimum wage rate were set at $15/hour,
A)employment would decline substantially.
B)employment would decline slightly.
C)employment would not be affected.
D)employment would rise slightly.
E)employment would rise substantially.
Q2) Which statement is true?
A)There are no professions where women earn more than their male counterparts.
B)In most occupations, women earn about the same as men.
C)The wage gap between women and men has somewhat widened over the last 40 years.
D)Today, the great divide between the haves and the have-nots is a college degree.
Q3) Today a college graduate earns about $____ while a high school graduate earns about $_____.
A)70,000; 24,000
B)53,000; 32,000
C)53,000; 24,000
D)70,000; 32,000
Q4) Economic rent is the difference between _____________ and ________________.
Page 19
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Chapter 17: Rent, Interest, and Profit
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Sample Questions
Q1) The horizontal dotted line is
A)a price ceiling.
B)a price floor.
C)either a price ceiling or a price floor.
D)neither a price ceiling nor a price floor.
Q2) Which of these does not interfere with the price mechanism?
A)Usury laws
B)Minimum wage laws
C)Farm price supports, or price floors
D)The law of supply and demand
Q3) Which statement is true about the present value of a dollar that will be received n years from now?
A)It is always negative.
B)It is worth less than a dollar received in the future.
C)It is worth more than a dollar received in the future because of inflation.
D)None of the statements is true.
Q4) ________________ said, "Property is theft!"
Q5) If the interest rate were 6%, $100 today would be worth $_____ that you will have 1 year from now.
Page 20
Q6) During biblical times charging interest was _____________________.
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Chapter 18: Income Distribution and Poverty
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Sample Questions
Q1) The main reason that college graduates earn more than high school dropouts is
A)the college graduate has learned very useful skills in college.
B)the college graduate has the personal characteristics that are useful in today's job market.
C)they have better connections.
D)they are virtually guaranteed good jobs when they graduate.
Q2) William Julius Wilson believes that the rise of black urban poverty was caused by each of the following except A)the rise of welfare dependency.
B)racism.
C)the decline of smokestack industries.
D)the exodus from the ghettos of the black middle and working classes.
Q3) If you worked 35 hours a week at a minimum wage job you could ________ a family of four above the poverty line.
A)easily keep
B)barely keep
C)not come close to keeping
Q4) The country with the highest child poverty rate in the industrial world is ________.
Q5) What is the percentage of income received by the upper quintiles on line L?
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Chapter 19: International Trade
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Sample Questions
Q1) Which one of the following interest groups would gain from the imposition of a quota on United States steel imports?
A)United States firms that build skyscrapers of steel and glass.
B)Steelworkers in Pennsylvania and Ohio.
C)United States industries that use farm equipment and machine tools.
D)Foreign producers who sell steel in the United States.
Q2) The law of comparative advantage states that
A)countries grow fastest if exports exceed imports, with payment surpluses being received in gold.
B)mutually beneficial trade can always take place between two countries whose pre-trade relative opportunity costs differ.
C)two countries can both gain from trade only when they have very different tastes and preferences.
D)trade benefits a country only if it has comparative advantages in all goods and services.
Q3) What is Germany's opportunity cost of 2 cameras?
Q4) Kmart, Wal-Mart, and Toys 'r' Us import much their goods from __________.
Q5) Between 2005 and 2008 our trade surplus on services has _________.
Q6) Germany has an absolute advantage in the production of which product?
Page 22
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Chapter 20: International Finance
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Sample Questions
Q1) Which statement is false?
A)Foreigners own a much greater percentage of the assets in the U.S.then they did in the early 1980s.
B)Americans have assets of over $1 trillion in foreign countries.
C)The dollar value of assets held by Americans in foreign countries has been declining since 1985.
D)None of the statements is false.
Q2) Statement I: The U.S. and nearly all other industrial nations were on the gold standard until 1934. Statement II: The gold standard may be termed "a self-correcting mechanism."
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q3) Foreign investment in the United States gives us
A)greater control over our economy.
B)less control over our economy.
C)neither greater control nor less control over our economy.
Q4) In April 2010, you needed about ________ euro to get $1.00.
Q5) Technically, our balance of payments always has a balance of _________.
Page 23
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