Applied Microeconomics
Exam Materials
Course Introduction
Applied Microeconomics explores the practical use of microeconomic theories and models to address real-world issues in various markets and industries. The course examines topics such as consumer and producer behavior, market structures, pricing strategies, and the effects of government policies on market outcomes. Emphasis is placed on empirical analysis, data interpretation, and case studies, enabling students to critically assess how microeconomic principles can solve contemporary economic problems and inform business and policy decisions.
Recommended Textbook
Microeconomics 3rd Australian Edition by Glenn Hubbard
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16 Chapters
3350 Verified Questions
3350 Flashcards
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Chapter 1: Economics: Foundations and Models
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) One desirable outcome of a market economy is that it leads to a more equitable distribution of income.
A)True
B)False
Answer: False
Q2) Which of the following is a normative economic statement?
A)The price of petrol is too high.
B)The current high price of petrol is the result of strong worldwide demand.
C)When the price of petrol rises,the quantity of petrol purchased falls.
D)When the price of petrol rises,transportation costs rise.
Answer: A
Q3) Explain the economic idea that 'people respond to incentives.'
Answer: Human beings act from a variety of motives,including religious belief,envy,and compassion.'People respond to incentives' means that people will act if they feel it is in their best economic interest to do so.
Q4) The government makes all economic decisions in a mixed economy.
A)True
B)False
Answer: False
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Chapter 2: Choices and Trade-Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) ________ marginal opportunity cost implies that the more resources already devoted to any activity,the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.
A)Increasing
B)Decreasing
C)Constant
D)Negative
Answer: A
Q2) For each surfboard that Australia produces,it gives up the opportunity to make 25 boomerangs.New Zealand can produce 1 surfboard for every 15 boomerangs it produces.Which of the following is true about the comparative advantage between the two countries?
A)Australia has the comparative advantage in surfboards.
B)Australia has the comparative advantage in boomerangs.
C)New Zealand has the comparative advantage in surfboards and boomerangs.
D)New Zealand has the comparative advantage in boomerangs.
Answer: B
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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202 Flashcards
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Sample Questions
Q1) Refer to Figure 3-2.An increase in the price of substitutes in production would be represented by a movement from
A)A to B.
B)B to A.
C)S<sub>1</sub> to S<sub>2</sub>.
D)S<sub>2 </sub>to S<sub>1</sub>.
Answer: D
Q2) In June,buyers of titanium expect that the price of titanium will fall in July.What happens in the titanium market in June,holding everything else constant?
A)The demand curve shifts to the right.
B)The quantity demanded increases.
C)The quantity demanded decreases
D)The demand curve shifts to the left.
Answer: D
Q3) If consumers believe the price of iPads will decrease in the future,this will cause the demand for iPads to decrease now.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50,the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula,what is the price elasticity of demand (in absolute value)over this range?
A)0.003
B)0.41
C)2.43
D)4
Q2) When demand is unit-elastic,a change in price causes total revenue to stay the same because
A)the percentage change in quantity demanded exactly offsets the percentage change in price.
B)buyers are buying the same quantity.
C)total revenue never changes with price changes.
D)the change in profit is offset by the change in production cost.
Q3) A demand curve that is horizontal indicates that the commodity
A)has few substitutes.
B)must be very cheap.
C)is a necessity.
D)has a large number of substitutes.
Page 6
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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187 Flashcards
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Sample Questions
Q1) Refer to Figure 5-1.Arnold's marginal benefit from consuming the fourth burrito is A)$0.
B)$1.00.
C)$2.50.
D)$3.00.
Q2) Refer to Table 5-4.If a minimum wage of $11.50 an hour is mandated,what is the quantity of labour demanded?
A)40 000
B)570 000
C)610 000
D)1 180 000
Q3) Refer to Figure 5-7.What is the size of the unit tax?
A)$2
B)$5
C)$7
D)$12
Q4) If the market price is at equilibrium,the producer surplus is minimised.
A)True
B)False
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Chapter 6: Consumer Choice and Behavioural Economics
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Sample Questions
Q1) Total utility is constant along a given indifference curve.
A)True
B)False
Q2) Some economists have argued that path dependency and switching costs can lead to market failure.Which of the following is an example of this argument?
A)Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity.
B)A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3000 even though he would not have paid $3000 for a ticket if he had not won the lottery.
C)While playing the ultimate game,an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself.
D)VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.
Q3) Explain the concept of network externalities.
Q4) What is a Giffen good?
Q5) Describe the demand curve for a Giffen good.
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Page 8
Chapter 7: Technology, Production and Costs
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) Refer to Figure 7-13.The lines shown in the diagram are isocost lines.Which of the following shows an increase in the firm's total cost while the price of labour and capital remain unchanged?
A)the movement from CE to BF
B)the movement from CE to AF
C)the movement from BD to AF
D)the movement from BD to CE
Q2) The total cost schedule shows the relationship between different amounts of inputs and the resulting level of output.
A)True
B)False
Q3) The slope of an isoquant measures
A)the price ratio of the two inputs.
B)the average product of labour.
C)the ratio of the marginal utility of the two inputs.
D)the rate at which inputs can be substituted for each other keeping total output constant.
Q4) Describe the relationship between marginal cost and average total cost.
Q5) Is it possible for technological change to be negative? If so,give an example.
Page 9
Q6) Describe the difference between technology and positive technological change.
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Chapter 8: Firms in Perfectly Competitive Markets
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270 Flashcards
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Sample Questions
Q1) A perfectly competitive firm produces 3000 units of a good at a total cost of $36
000.The price of each good is $10.Calculate the firm's short-run profit or loss.
A)loss of $6000
B)profit of $6000
C)profit of $30 000
D)There is insufficient information to answer the question.
Q2) At the profit-maximising level of output for a perfectly competitive firm,
A)price equals marginal cost.
B)average revenue equals average variable cost,and price equals marginal cost.
C)marginal revenue equals marginal cost,and average total cost equals average fixed cost.
D)price equals average revenue,and marginal cost equals average variable cost.
Q3) How are sunk costs and fixed costs related?
A)They are not related in any way.
B)Sunk costs cannot be recovered and fixed costs can be avoided by shutting down.
C)In the short run they are equal to each other.
D)In the long run they are equal to each other.
Q4) What is meant by the term 'long-run competitive equilibrium'?
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Page 10
Chapter 9: Monopoly Markets
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Sample Questions
Q1) What is the difference between price discrimination and other forms of discrimination?
Q2) If a monopolist's price is $50 at the output where marginal revenue equals marginal cost and average total cost is $43,then the average profit is $7.
A)True
B)False
Q3) Refer to Figure 9-11.What is the amount of consumer surplus if,instead of monopoly,the industry was organised as a perfectly competitive industry?
A)$21
B)$124
C)$186
D)$332
Q4) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?
Q5) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
Q6) If you own the only bookstore in a small town,do you have a monopoly?
Q7) What happens to a monopoly's revenue when it sells more units of its product?
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Chapter 10: Monopolistic Competition
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253 Flashcards
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Sample Questions
Q1) Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run,which of the following is most likely to occur?
A)New firms that sell Italian ice will enter the market and Tony's cost curves will shift to the left.
B)New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left.
C)New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the right.
D)New firms that sell Italian ice will enter the market and Tony's demand curve will become more inelastic.
Q2) Refer to Table 10-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?
A)output effect = $3.00;price effect = $0.50
B)output effect = $1.50;price effect = $2.00
C)output effect = $5.50;price effect = -$2.00
D)output effect = $4.00;price effect = -$0.50
Q3) What is meant by 'excess capacity'? How does it relate to consumer utility?
Q4) What is the difference between zero accounting profit and zero economic profit?
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Page 12
Chapter 11: Oligopoly: Firms in Less Competitive Markets
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186 Flashcards
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Sample Questions
Q1) A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called
A)an earnings table.
B)a payoff table.
C)a payoff matrix.
D)a strategic matrix.
Q2) An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a A)cartel equilibrium.
B)noncooperative equilibrium.
C)prisoner's dilemma equilibrium.
D)dominant strategy equilibrium.
Q3) The prisoner's dilemma illustrates
A)how oligopolists engage in implicit collusion under strategic situations.
B)why firms will not cooperate if they behave strategically.
C)why firms have an incentive to cheat on agreements.
D)how cooperation in strategic situations leads to the economically efficient market outcome.
Q4) What is a sequential game? How are decision trees used to analyse sequential games?
13
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Chapter 12: The Markets for Labour and Other Factors of Production
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253 Flashcards
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Sample Questions
Q1) The success of Walt Disney's animated film The Lion King in 1994,increased production of animated films,increasing the demand for animators much faster than the supply of animators was increasing.As a result,in the market for animators,the equilibrium wage fell and the equilibrium quantity increased.
A)True
B)False
Q2) If the labour demand curve shifts to the right and the labour supply curve remains unchanged,what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Q3) At low wages,the labour supply curve for most people slopes upward because
A)the supply of labour is perfectly inelastic at low wages.
B)as wages increase,the opportunity cost of leisure increases.
C)as wages increase,income also increases unless hours worked decrease.
D)the demand for labour is perfectly elastic at low wages.
Q4) Technological advancements that increase labour's productivity shift the labour supply curve to the right.
A)True
B)False
Q5) What is a monopsony?
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Chapter 13: International Trade
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131 Flashcards
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Sample Questions
Q1) Which of the following is not a source of comparative advantage?
A)relative abundance of labour and capital
B)technology
C)climate and natural resources
D)a strong foreign currency exchange rate
Q2) Refer to Table 13-3.Select the statement that accurately interprets the data in the table.
A)Bryce has an absolute advantage in making candles and soap.
B)Tina has an absolute advantage in making candles and soap.
C)Neither Bryce nor Tina has an absolute advantage in making candles.
D)Neither Bryce nor Tina has an absolute advantage in making soap.
Q3) A tariff is a tax imposed by a government on its own exports.
A)True
B)False
Q4) Assume that China has a comparative advantage in producing corn and exports corn to Japan.We can conclude that
A)China also has an absolute advantage in producing corn relative to Japan.
B)China has a lower opportunity cost of producing corn relative to Japan.
C)Japan has an absolute disadvantage in producing corn relative to China.
D)labour costs are higher for corn producers in Japan than in China.
Page 15
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?
A)moral hazard
B)adverse selection
C)asymmetric information
D)economic irrationality
Q2) What is the relationship between market failure and government failure?
Q3) Refer to Figure 14-2.How much is Bree willing to pay to have 4 street lights installed?
A)$1500
B)$1800
C)$2700
D)$7200
Q4) Advertising is the action of a firm that is intended to maintain the differentiation of its product over time.
A)True
B)False
Q5) What is rent seeking and how is it related to regulatory capture?
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Chapter 15: Externalities, Environmental Policy and Public Goods
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212 Flashcards
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Sample Questions
Q1) If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm,your legal fees would be considered A)external costs.
B)transactions costs.
C)marginal benefits.
D)social costs of the pollution.
Q2) Refer to Figure 15-4.Why is there a deadweight loss?
A)because the marginal social cost of producing each additional unit in excess of Q<sub>2 </sub>exceeds the marginal benefit
B)because the marginal private cost of producing each additional unit in excess of Q<sub>2 </sub>exceeds the marginal benefit
C)because the marginal social benefit of producing each additional unit in excess of Q<sub>2</sub> exceeds the private cost
D)because the marginal private benefit of producing each additional unit in excess of Q<sub>2</sub> exceeds the social cost
Q3) How does a public good differ from a quasi-public good? In your answer give an example of each type of good.
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) Refer to Figure 16-6.If area X = 2060,area Y = 240,and area Z = 2700,calculate the Gini coefficient for Islandia.
A)0.41
B)0.45
C)0.70
D)0.76
Q2) Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the consumer's burden of the tax
A)is greater under the more elastic supply curve S<sub>0</sub>.
B)is greater under the less elastic supply curve S<sub>0</sub>.
C)is greater under the less elastic supply curve S<sub>1</sub>.
D)is the same under either supply curve because there is a single demand curve that captures buyers' market behaviour.
Q3) As the value of the Gini coefficient approaches zero,
A)income distribution becomes less unequal.
B)income distribution becomes more unequal.
C)the percentage of the population under the poverty line increases.
D)the percentage of the population under the poverty line decreases.
Q4) What is a Lorenz curve and what is a Gini coefficient?
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