Applied Microeconomics Exam Preparation Guide
Course Introduction
Applied Microeconomics explores the practical application of microeconomic theory to real-world issues and decision-making processes. The course covers topics such as consumer and producer behavior, market structures, pricing strategies, and the role of government intervention. Emphasis is placed on using quantitative and qualitative tools to analyze problems related to labor markets, public policy, environmental regulation, and industrial organization. Students will develop critical thinking skills as they apply economic reasoning to contemporary business and policy challenges, preparing them for advanced study or careers in economics, business, and public administration.
Recommended Textbook
ECON MICRO 5th Edition by William A. McEachern
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21 Chapters
3187 Verified Questions
3187 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) To tell a compelling story, an economist relies on:
A)case studies and parables.
B)anecdotes and personal experiences.
C)irrelevant data.
D)anecdotes and irrelevant data.
E)case studies, anecdotes, parables, personal experience, and supporting data.
Answer: E
Q2) Economic theories are:
A)useful because they are as exact as theories in the physical sciences.
B)useless because they are based on abstractions.
C)useful because they allow us to make predictions.
D)too complex to understand because they include all of reality.
E)useful in predicting events only if their assumptions are realistic.
Answer: C
Q3) Economics is the only social science and the only business discipline for which the Nobel Prize is awarded.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economic Systems
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Opportunity cost is objective; therefore, its value does not change as circumstances change.
A)True
B)False
Answer: False
Q2) On a straight-line production possibilities frontier, which of the following is true?
A)The problem of scarcity does not exist.
B)Resources are imperfect substitutes.
C)Opportunity costs are constant.
D)Technology is rapidly expanding.
E)Some resources are not being used efficiently.
Answer: C
Q3) The primary differences in economic structure among different countries relate to ownership of resources and the manner in which economic activities are coordinated.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Economic Decision Makers
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) In the United States since World War II, there has been:
A)a dramatic increase in the population living in rural areas.
B)a decline in the number of women in the labor force.
C)a decrease in the opportunity cost of working in the home.
D)more specialization of production within households.
E)a dramatic increase in the number of married women in the labor force.
Answer: E
Q2) Which of the following is not a function of government?
A)Promotion of competition
B)Stabilization to achieve the macroeconomic goals
C)Redistribution of income through taxation and transfer payments
D)Production of public goods
E)Providing the economy's private goods
Answer: E
Q3) Externalities can occur as a result of either production or consumption activities.
A)True
B)False
Answer: True
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Chapter 4: Demand, Supply, and Markets
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Suppose a price floor for a good is set above the equilibrium price. At this price:
A)quantity supplied will be less than quantity demanded.
B)quantity supplied will exceed quantity demanded.
C)there will be a shortage of the good.
D)more number of consumers will be willing and able to purchase the good.
E)producers will suffer an economic loss.
Q2) Suppose the market for beef cattle was initially in equilibrium .An increase in the price of the fodder used to feed cattle would cause:
A)the demand for beef cattle to increase, driving the price of beef upward.
B)the supply of beef cattle to decline, driving the price of beef upward in the long run.
C)the supply of beef to increase, placing downward pressure on the price of beef in the long run.
D)both supply and demand to fall, leaving the price of beef virtually unchanged.
E)the supply of beef to increase, driving the price of beef down and increasing demand.
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6
Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) Which of the following does not determine a good's price elasticity of demand?
A)The time interval considered
B)The number of substitutes available for the good
C)Expenditure on the good as a percentage of the total consumer budget
D)The slope of the demand curve
E)The more of a luxury a particular good is
Q2) Along a linear demand curve, as the price increases from zero:
A)demand decreases.
B)demand increases.
C)quantity demanded increases.
D)total revenue first increases but eventually decreases.
E)total revenue first decreases but eventually increases.
Q3) A normal good is defined as a product for which quantity demanded increases as price decreases.
A)True
B)False
Q4) Any supply curve that is a straight line passing through the graph's origin is unit elastic.
A)True
B)False
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Chapter 6: Consumer Choice and Demand
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150 Flashcards
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Sample Questions
Q1) Suppose Enid could increase her total utility by purchasing one more book and one less DVD. Which of the following is true?
A)The marginal utility of an additional DVD exceeds the marginal utility of an additional book.
B)The marginal utility of an additional book exceeds the marginal utility of an additional DVD.
C)The marginal utility of an additional DVD is negative.
D)The marginal utility of per dollar spent on books exceeds that of DVDs.
E)The marginal utility of per dollar spent on books equals that of DVDs.
Q2) "The second glass of Evian water was very good. May I have another?" Which of the following is necessarily true regarding this statement?
A)The marginal utility of the second glass of water was negative.
B)The marginal utility of the first glass of water was zero.
C)The marginal utility of the second glass of water was positive.
D)The water is available free of cost.
E)The marginal utility of the third glass of water will be negative.
Q3) The consumption of goods and services has both a money price and a time price.
A)True
B)False
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Page 8
Chapter 7: Production and Cost in the Firm
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) If a firm triples all of its inputs and its output doubles, it is said to be experiencing:
A)diminishing marginal returns.
B)increasing marginal returns.
C)diseconomies of scale.
D)economies of scale.
E)constant average costs.
Q2) Unlike implicit costs, explicit costs:
A)reflect opportunity costs.
B)include the value of the owner's time.
C)are not included in a firm's accounting statements.
D)are actual cash payments.
E)do not change as a firm's output changes.
Q3) The shape of the long-run average cost curve reflects _____.
A)market demand
B)economies and diseconomies of scale
C)increasing and diminishing marginal returns
D)productivity of fixed inputs
E)the law of diminishing returns
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9
Chapter 8: Perfect Competition
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Sample Questions
Q1) Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. What is likely to happen to a typical firm in the long run?
A)It will not change either the equilibrium price charged or the equilibrium quantity supplied.
B)The equilibrium price will be higher in the long run.
C)The equilibrium price will be lower than the original equilibrium price in the long run.
D)It will not change the equilibrium price but will increase output.
E)It will experience a lower average total cost and will increase output.
Q2) If a manufacturer shuts down in the short run, it must be true that before the shutdown, at all positive output levels, _____.
A)average total cost was less than average variable cost
B)fixed cost was greater than total revenue
C)variable cost was greater than total revenue
D)profit was zero
E)total cost plus total revenue was less than profit
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Chapter 9: Monopoly
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150 Flashcards
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Sample Questions
Q1) Unlike perfectly competitive firms, monopolists:
A)earn positive short-run economic profit even if price is less than average variable cost at all rates of output.
B)sell any quantity of output at any price they choose.
C)earn long-run economic profits.
D)reduce the sales of firms in other industries through advertising.
E)face a perfectly elastic demand curve.
Q2) Which of these is a similarity between a monopolist that does not practice price discrimination and a perfectly competitive firm?
A)The firms face the same amount of competition from new entrants into the market.
B)The firms have an equal number of rivals.
C)The firms face perfectly price elastic demand curves.
D)Price equals marginal revenue at all output rates for both types of firms.
E)Price equals average revenue at all output rates for both types of firms.
Q3) A monopolist maximizes profit at the output rate where its total revenue equals total cost.
A)True
B)False
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Monopolistically competitive firms use product differentiation to increase the price elasticity of demand.
A)True
B)False
Q2) Monopolistically competitive industries consist of:
A)one firm selling several products.
B)one firm selling one product.
C)many firms, all selling identical products.
D)many firms, each selling a slightly different product.
E)many firms, each selling a completely different product.
Q3) Suppose a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30, and the marginal cost of producing that additional unit is $23. The firm should:
A)change neither its price nor its output level.
B)reduce its price and increase its output level.
C)increase its price and reduce its output level.
D)reduce both its price and its output level.
E)increase both its price and its output level.
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Chapter 11: Resource Markets
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Suppose 2 froyo machines and 12 workers produce eight quarts of froyo. If the marginal product of the thirteenth worker is two quarts, then which of the following is true?
A)Thirteen workers produce ten quarts of froyo.
B)Thirteen workers produce two quarts of froyo.
C)The thirteenth worker alone produces ten quarts of froyo.
D)Thirteen workers produce six quarts of froyo.
E)The diminishing marginal returns begin with the thirteenth worker.
Q2) the demand for corn decreasesCorn is a major ingredient in tacos. If the demand for tacos increases, _____.
A)the supply of corn increases
B)the supply of corn decreases
C)the demand for corn increases
D)the demand for corn decreases
E)the price of corn falls
Q3) An increase in the price of a resource will cause a movement along the demand curve for that resource.
A)True
B)False
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Page 13
Chapter 12: Labor Markets and Labor Unions
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) The income and substitution effects of a change in the wage rate:
A)always work in the same direction.
B)always work in opposite directions.
C)work in opposite directions only if the wage decreases.
D)work in the same direction only if the wage increases.
E)work in the same direction only if the wage decreases.
Q2) The equilibrium wage:
A)is the same in all labor markets.
B)occurs where the supply of labor curve begins to bend backward.
C)cannot be calculated because there are so many labor markets.
D)is determined by the market demand for labor and the market supply of labor.
E)is irrelevant because of unions.
Q3) If the substitution effect dominates the income effect, then an increase in the wage rate will increase the quantity of labor supplied by an individual.
A)True
B)False
Q4) An increase in the wage rate will decrease the demand for labor.
A)True
B)False
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) The opportunity cost of producing capital goods is a(n):
A)decrease in the current production of consumption goods.
B)increase in the future production of consumption goods.
C)increase in the rate of interest.
D)increase in the stock of capital available for future use.
E)decrease in the amount of capital available for future use.
Q2) If consumers decide to increase their rate of saving, the _____.
A)supply of loanable funds will decrease
B)supply of loanable funds will increase
C)demand for loanable funds will decrease
D)quantity of loanable funds demanded will increase
E)quantity of loanable funds supplied will increase
Q3) Companies in financial trouble can raise funds easily from the securities market.
A)True
B)False
Q4) The present value of a promise to pay $100 one year from now would be greater if the interest rate were higher.
A)True
B)False
Page 15
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Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Andrew leaves the washer, dryer, and dishwasher running at home when he leaves for his music class. Being aware that the recently bought fire insurance for his house will cover any damage caused by fire, he considers himself risk free. Which of the following problems is described in this example?
A)The common resource problem
B)The unbounded rationality problem
C)The adverse selection problem
D)The winner's curse problem
E)The moral hazard problem
Q2) If an employment situation is characterized by adverse selection, there is an excess supply of underqualified applicants for each job.
A)True
B)False
Q3) A firm is experiencing economies of scope if per-unit production cost falls with an increase in its output.
A)True
B)False
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Page 16
Chapter 15: Economic Regulation and Antitrust Policy
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Which of the following is the main criticism of the Sherman Act?
A)The Sherman Act has been criticized to be overly harsh.
B)The Sherman Act has been criticized to be unnecessary at the time.
C)The Sherman Act has been criticized to be too vague.
D)The Sherman Act has been criticized to be identical to an existing law.
E)The Sherman Act has been criticized to have come into effect too late.
Q2) If an industry consists of only four firms with equal market shares, then the Herfindahl index is _____.
A)25
B)10,000
C)100
D)2,500
E)50
Q3) In order to maximize profit, an unregulated monopolist:
A)produces the level of output at which marginal cost equals marginal revenue.
B)produces the level of output at which marginal cost exceeds marginal revenue.
C)charges a price that is equal to its marginal cost of production.
D)charges a price that is equal to its average cost of production.
E)produces the level of output at which marginal cost is less than marginal revenue.
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Page 17
Chapter 16: Public Goods and Public Choice
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150 Flashcards
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Sample Questions
Q1) The proposed takeover of Tony's Airlines by Plummet Airlines will result in increased profits for Plummet and increased air fares for consumers. This is an example of the:
A)widespread distribution of benefits and costs.
B)concentrated distribution of costs and benefits.
C)concentrated distribution of benefits and widespread distribution of costs.
D)concentrated distribution of costs and widespread distribution of benefits.
E)benefit of a narrow geographical interest group.
Q2) A good that is both rival and exclusive is called a(n):
A)private good.
B)public good.
C)quasi-private good.
D)external good.
E)open-access good.
Q3) Special-interest legislation is characterized by:
A)concentrated costs and concentrated benefits.
B)concentrated benefits and widespread costs.
C)widespread benefits and widespread costs.
D)widespread benefits and concentrated costs.
E)zero costs.
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Page 18
Chapter 17: Externalities and the Environment
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Sample Questions
Q1) Economists view pollution as an economic problem that arises because:
A)private enterprises always minimize the amount of pollution produced.
B)profitable firms rarely pollute.
C)the level of pollution declines as the economy grows.
D)firms that pollute do not pay the full social cost of producing their output.
E)pollution costs are borne by the consumer.
Q2) In order to increase a society's total welfare, a production process that produces a negative externality should be _____.
A)taxed
B)encouraged to produce goods in excess of the socially optimum level
C)prohibited
D)subsidized if the good is produced for foreign markets
E)subsidized if the good is produced for the domestic market
Q3) Negative externalities of open resources arise because:
A)there are no enforceable property rights to open-access resources.
B)these are private goods and government enforces property rights.
C)consumers have to pay for each unit of production.
D)the government undertakes the distribution of these resources.
E)these are available in finite amounts.
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Page 19
Chapter 18: Poverty and Redistribution
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Sample Questions
Q1) Eligibility for income assistance benefits requires a prior financial contribution from the individual covered; eligibility for social insurance programs does not.
A)True
B)False
Q2) The percentage of the U.S. population on welfare has declined after the welfare reforms in 1996.
A)True
B)False
Q3) Evidence suggests that spending by quintiles is more evenly distributed than income by quintiles.
A)True
B)False
Q4) A consequence of the "workfare" component in welfare programs was that:
A)the government incurred huge federal deficits while running this program.
B)the government saved money because people in this program left welfare sooner.
C)it led to the unionization of the workforce.
D)it increased the dependency on welfare programs and people continued to be on welfare for decades.
E)it reduced the incentives of out-of-work workers to find employment.
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Chapter 19: International Trade
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Sample Questions
Q1) Which of the following is true of autarky?
A)Each country's consumption possibilities are the same as its production possibilities.
B)Equilibrium is attained with the maximum gains from specialization and trade.
C)There is no legal limit on the amount of a commodity that can be imported.
D)Countries export products they can produce more cheaply in return for products that are unavailable domestically or are cheaper elsewhere.
E)World price is determined by the world supply and demand for a product.
Q2) If production is subject to economies of scale, countries can gain from trade if each nation specializes in the production of a good.
A)True
B)False
Q3) World output will be maximized if each country:
A)attempts to be self-sufficient.
B)specializes in producing those goods in which it has a comparative advantage.
C)specializes in producing those goods in which it has an absolute advantage.
D)reduces its consumption possibilities.
E)equals their consumption possibilities.
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Page 21
Chapter 20: International Finance
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Sample Questions
Q1) As the price of foreign exchange decreases relative to the U.S. dollar, the:
A)products made in the U.S. become cheaper for foreigners.
B)goods made in foreign countries become cheaper for Americans.
C)amount of foreign currency required to purchase a unit of U.S. dollar increases.
D)U.S. demand curve for foreign exchange shifts to the right.
E)supply curve of foreign exchange to U.S. markets decreases.
Q2) Critics of the system of flexible exchange rates allege that it:
A)causes inflation.
B)causes unemployment.
C)gives central banks too little discretion over their money supplies.
D)restricts the growth of developing countries.
E)gives too much financial power to industrial countries.
Q3) When supply and demand analysis is used to study the exchange rate, foreign exchange is treated just like _____.
A)a normal good
B)a debt
C)fiat money
D)commodity money
E)an investment
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Page 22
Chapter 21: Economic Development
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Sample Questions
Q1) The WHO cites _____ as the biggest single threat to the world's public health.
A)malnutrition
B)female genocide
C)nuclear radiation
D)yellow fever
E)the H1N1 virus
Q2) Foreign aid includes loans that:
A)have high interest rates and short repayment periods.
B)have high interest rates and long repayment periods.
C)have low interest rates and short repayment periods.
D)have low interest rates and long repayment periods.
E)require no interest payments at all.
Q3) Gloria, who lives in a developing country, is likely to:
A)be less educated than most men in her country.
B)be a graduate and her brother is likely to be a school dropout.
C)have more employment opportunities and earn higher wages than her male classmates.
D)work long hours on her farmland.
E)have special access to resources such as land, capital, and technology.
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Page 23