Applied Microeconomics
Exam Solutions
Course Introduction
Applied Microeconomics explores the practical applications of microeconomic theory to real-world problems and decision-making processes within households, firms, and governments. The course examines how individuals and organizations respond to incentives, allocate scarce resources, and interact within various market structures. Key topics include consumer and producer behavior, market equilibrium, price determination, market failures, and the impact of government policies. Through case studies and empirical analysis, students learn to critically analyze issues such as pricing strategies, labor markets, competition, and regulatory interventions, equipping them with analytical tools to address contemporary economic challenges.
Recommended Textbook
Microeconomics 10th Edition by William Boyes
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2295 Verified Questions
2295 Flashcards
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Chapter 1: The Wealth of Nations: Ownership and Economic
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Sample Questions
Q1) Economics is the study of:
A)the allocation of scarce resources and the ways in which human decision makers utilize those resources.
B)the methods that human decision makers use to transform a scarce good into a non-economic good.
C)how to operate a business successfully.
D)a utopian society.
E)how to make money in the stock market.
Answer: A
Q2) When you work to support your lifestyle, you are making a tradeoff.
A)True
B)False
Answer: True
Q3) In Figure 1.3, which point should society produce at to maximize efficiency?
A)Only point A
B)Only point B
C)Only point C
D)Only point E
E)Any point on its PPC
Answer: E
Page 3
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) Betty goes out to enjoy a bouffe with her friend instead of practicing calculus problems for her maths examination that is due the following day. This implies that the opportunity cost of the bouffe to Betty is zero.
A)True
B)False Answer: False
Q2) When there is a choice between the consumption of bundle X and bundle Y, the opportunity cost of consuming bundle X is bundle Y.
A)True
B)False Answer: True
Q3) Refer to Table 2.4. If the countries were to engage in trade, what would be the most Ohio would be willing to pay for 1 chili?
A)4 cookies
B)8 cookies
C)1/4 of a cookie
D)1/8 of a cookie
E)6 cookies
Answer: C
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Page 4
Chapter 3: Markets and the Price System
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Sample Questions
Q1) Assume that the market for gasoline in Figure 3.6 is in equilibrium. What is the most likely consequence of a government-imposed price ceiling at $10 per unit?
A)The profit made by gasoline producers will increase.
B)The demand for gasoline will decrease.
C)The quantity of gasoline supplied to the market will decrease.
D)There will be a surplus of gasoline in the market.
E)The demand curve for gasoline will shift to the right.
Answer: C
Q2) According to Table 3.2, if the supply schedules 1, 2, and 3 are the market supply schedules for DVDs in three different time periods, what could explain the change from the Supply 1 schedule to the Supply 2 schedule?
A)A decrease in the price of DVDs
B)A decrease in the cost of DVD players
C)A change in consumer preferences
D)A change in the average income of consumers
E)An increase in the cost of producing DVDs
Answer: E
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Chapter 4: The Aggregate Economy
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Sample Questions
Q1) Which of the following flows from the government to the households?
A)Goods and services
B)Resources of production
C)Taxes
D)Government services
E)Loans
Q2) Empirical evidence on the U.S. economy suggests that household spending and income have an inverse relationship.
A)True
B)False
Q3) According to Scenario 4-1, country C has net exports of:
A)zero.
B)$13 million.
C)$6 million.
D) $13 million.
E) $6 million.
Q4) A person obtains income by selling the services of the resources that he or she owns.
A)True
B)False
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Chapter 5: Using Economics to Understand the World
Around You
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Sample Questions
Q1) In which of the following situations will the price of medical care decrease with an increase in its demand?
A)When the supply of medical care is the same as the demand for medical care
B)When there is an increase in productivity as a result of a technological advancement
C)When there is an increase in the price of resources used to produce medical care
D)When the supply of medical care increases more than the demand for medical care
E)When there is an increase in future profit expectations
Q2) Refer to figure 5.1. An increase in the country's gross domestic product will cause:
A)no change in the production possibility curve of the country.
B)an upward movement along the production possibility curve.
C)a downward movement along the production possibility curve.
D)an inward shift in the production possibility curve.
E)a rightward shift in the production possibility curve.
Q3) The lowest of the federal or state minimum wage levels prevails in each state.
A)True
B)False
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Chapter 6: Elasticity: Demand and Supply
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Sample Questions
Q1) Demand for a good becomes more elastic as:
A)the number of substitutes available declines.
B)the time period under consideration becomes shorter.
C)a good makes up a larger percentage of a consumer's budget.
D)a good makes up a smaller percentage of a consumer's budget.
E)the producer has more time to respond to price changes.
Q2) The cross-price elasticity between baseballs and tennis balls is likely to be a large positive number.
A)True
B)False
Q3) Given the above equation, the income elasticity of demand for noodles is _____.
A)5
B)0.5
C)2
D)2.5
E)1.6
Q4) The coefficient of the price elasticity of demand is always negative.
A)True
B)False
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Chapter 7: Demand: Consumer Choice
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Sample Questions
Q1) As a consumer eats additional pieces of pizza, total utility will _____.
A)always keep increasing
B)always keep decreasing
C)keep increasing until dissatisfaction sets in
D)keep decreasing until dissatisfaction sets in
E)initially keep decreasing until it becomes zero and then increase
Q2) In an indifference map, one would most likely see indifference curves that:
A)are positively sloped.
B)intersect at the origin.
C)cross at the equilibrium point.
D)are bowed inward toward the origin.
E)represent greater utility as they approach the origin.
Q3) The demand curve for a product can be derived from consumer equilibrium by:
A)altering the prices of all other products.
B)altering consumer incomes.
C)shifting consumer preferences.
D)altering the price of the good itself.
E)knowing the demand curves for all other products.
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Chapter 8: Supply: the Costs of Doing Business
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Sample Questions
Q1) As long as there are fixed resources, diminishing marginal returns will never exist.
A)True
B)False
Q2) If the average total cost of producing 2 pounds of cheese is $4 and the average total cost of producing 3 pounds of cheese is $4.2, then the marginal cost of producing third pound of cheese is equal to:
A)$4.2.
B)$8.
C)$4.5.
D)$4.6.
E)$4.1.
Q3) According to Table 8.2, the average variable cost of producing two units of output is:
A)$48.
B)$50.
C)$62.
D)$55.
E)$60.
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Chapter 9: Profit Maximization
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Sample Questions
Q1) A monopolistically competitive firm faces a relatively steeper demand curve than that of a perfectly competitive firm.
A)True
B)False
Q2) The ordering of market structures from most market power to least market power (where market power is the ability to set its own price) is:
A)monopoly, monopolistic competition, oligopoly, perfect competition.
B)perfect competition, monopolistic competition, oligopoly, monopoly.
C)oligopoly, monopoly, monopolistic competition, perfect competition.
D)monopoly, oligopoly, monopolistic competition, perfect competition.
E)monopoly, perfect competition, monopolistic competition, oligopoly.
Q3) The entry of new firms into an industry lowers the economic profit of the existing firms.
A)True
B)False
Q4) Entry barriers exist in a perfectly competitive industry.
A)True
B)False
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Chapter 10: Perfect Competition
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Sample Questions
Q1) Under long-run equilibrium in perfect competition, each firm operates at the minimum point of its average-variable-cost curve.
A)True
B)False
Q2) The model of perfect competition best applies to markets with:
A)a few firms selling identical products.
B)a few firms selling differentiated products.
C)many firms selling differentiated products.
D)many firms selling identical products.
E)significant barriers to entry and exit.
Q3) A firm's total revenue is $400 for 8 units of output, $600 for 12 units of output, and $1,100 for 22 units of output. Evidently this firm is operating in a(n):
A)perfectly competitive market.
B)monopolistic market.
C)monopsonist market.
D)monopolistically competitive market.
E)oligopolistic market.
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Chapter 11: Monopoly
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Sample Questions
Q1) If a monopolist is producing at the profit-maximizing level of output, what price will it charge?
A)The price given by the marginal-revenue curve at that level of output.
B)The price given by the marginal-cost curve at that level of output.
C)The price given by the average-cost curve at that level of output.
D)The price given by the average-revenue curve at that level of output.
E)The price given by the total revenue curve at that level of output.
Q2) What is the profit-maximizing level of output for the monopoly firm described in Table 11.2, if the firm is earning a positive economic profit?
A)1 unit
B)2 units
C)3 units
D)5 units
E)6 units
Q3) If a monopolist is producing at a point at which marginal revenue is greater than marginal cost, it should decrease the level of production.
A)True
B)False
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Chapter 12: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The greater the consumer's reluctance to shift brands, the lower the price elasticity of demand.
A)True
B)False
Q2) According to Table 12.2, if firm A follows its dominant strategy but firm B does not, then firm A earns a profit of:
A)$50.
B)$40.
C)$60.
D)$45.
E)$42.
Q3) In Figure 12.2, assume that the average total cost of the firm is represented by the curve ATC<sub>2</sub>. In the long run, we would expect:
A)entry of firms into the market because economic profits exist.
B)exit of firms from the market because the existing firms suffer economic losses.
C)each firm's demand curve to shift to the right.
D)the market to become perfectly competitive.
E)the market to become a monopoly.
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Chapter 13: Markets and Government
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Sample Questions
Q1) Both the principles of rivalry and mutual excludability apply for club goods.
A)True
B)False
Q2) A tradable government permit for the atmospheric release of a ton of sulfur dioxide can help reduce acid rain.
A)True
B)False
Q3) In which of the following markets adverse selection may not occur?
A)The market for pre-owned residential apartments
B)The lemons market
C)The market for new sports utility vehicles
D)The capital market
E)The market for health insurance
Q4) When the government tries to control pollution through cap and trade, it _____.
A)issues permits that enables the owners of the permit to pollute
B)allows polluting firms to produce public goods that reduce pollution
C)levies tax on the polluting firm
D)gives subsidies to the firms who adopt clean production technologies
E)takes legal actions against the firms who pollute beyond the specified level
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Chapter 14: Antitrust and Regulation
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Sample Questions
Q1) Which of the following calculations is necessary to determine whether a regulation should be implemented?
A)Marginal cost-marginal revenue calculations
B)Cost effectiveness calculations
C)Total cost-total revenue calculations
D)Cost minimization calculations
E)Cost-benefit calculations
Q2) Although the GATT was supported by most of the countries of the world, yet global trade shrank during the close of the last decade. This was due to:
A)growing suspicion among the nations of the world.
B)hyperinflation in the major economies of the world.
C)the recession which began in 2007.
D)political turmoil in the Asian countries.
E)the desire among the major players to dominate the international market.
Q3) If there are 50 firms in the industry, and each have an equal market share, the Herfindahl index will be equal to 1,00,000.
A)True
B)False
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Chapter 15: Resource Markets
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Sample Questions
Q1) Consider the resource market shown in Figure 14.3. Given that the resource market is perfectly competitive, how many units of the resource will be purchased when the market is in equilibrium?
A)Less than 10 units
B)10 units
C)Between 10 and 15 units
D)15 units
E)More than 15 units
Q2) In a perfectly competitive labor market, a profit-maximizing firm that is also perfectly competitive in the product market will:
A)face a perfectly inelastic supply curve of labor.
B)pay a wage that is equal to the price of the product.
C)pay a wage that is equal to the marginal product of labor.
D)hire more units of labor than would a firm that sells its output in a monopoly market.
E)pay a wage equal to the marginal factor cost.
Q3) Burger King has a direct demand for the cheese which it uses in its burgers.
A)True
B)False
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Chapter 16: The Labor Market
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Sample Questions
Q1) Statistical discrimination is legal under the disparate impact standard but illegal under the treatment standard.
A)True
B)False
Q2) The wage gap between males and females is decreasing, and will be finally eradicated because the average male in the labor force has equal marketable human capital as the average female.
A)True
B)False
Q3) The Chinese Exclusion Act of 1882 was the first restriction on immigration, in the U.S. A)True
B)False
Q4) As the wage rate increases, the quantity of labor supplied by an individual worker will:
A)invariably increase
B)invariably decrease.
C)first increase and then decrease.
D)first decrease and then increase.
E)remain constant.
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Chapter 17: The Capital Market
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Sample Questions
Q1) A decline in the interest rate will lead to an increase in the price of capital, supply of capital remaining constant.
A)True
B)False
Q2) If the par value of a bond is $200, and the bid price of the bond is $90, it implies that:
A)the bond is sold at $110.
B)the bond was bought at $110.
C)the bond is trading at a discount of 10 percent of its par value.
D)the bond is trading at 45 percent of its par value.
E)the bond is trading at a premium of 15 percent.
Q3) Notes are debt securities which have a maturity period of:
A)0-5 years.
B)10-15 years.
C)0-1 year.
D)10-20 years.
E)1-10 years.
Q4) The S&P 500 index includes the stocks of 500 largest companies in the U.S.
A)True
B)False
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Chapter 18: The Land Market and Natural Resources
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Sample Questions
Q1) Because there is a finite supply of a nonrenewable resource,:
A)it has inadequate substitutes.
B)any use of that resource today will leave less available for tomorrow.
C)such resources are replenished faster than they are consumed.
D)the government subsidizes the extraction of such resources.
E)any use of that resource today means the value of the resource will fall in the future.
Q2) The earnings of which of the following resources comprises entirely of economic rent?
A)Unskilled labor
B)Coal
C)Timber
D)Water
E)Biomass
Q3) An increase in demand for housing will reduce the availability of land for cultivation.
A)True
B)False
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Chapter 19: Current Issues: Income, Income Distribution,
Poverty, and Government Policy
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Sample Questions
Q1) Refer to Figure 19.2. The richest 20 percent of the population in Country A receive:
A)10 percent of the national income.
B)20 percent of the national income.
C)30 percent of the national income.
D)40 percent of the national income.
E)50 percent of the national income.
Q2) If everyone in an economy had equal income, the Lorenz curve would be a curve that intersects the line of income equality at the point at which 50 percent of the population earns 50 percent of the income.
A)True
B)False
Q3) The longer the time period considered, the greater the mobility within an income distribution.
A)True
B)False
Q4) Before-tax incomes are a better measure of income as compared to after-tax incomes.
A)True
B)False
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Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) Refer to Figure 20.1. The autarky equilibrium price of coffee in Columbia is:
A)$16.
B)$8.
C)$10.
D)$12.
E)$14.
Q2) The import demand curve shows the amount of the home country's:
A)surplus at various prices below the "no-trade" equilibrium.
B)shortage at various prices below the "no-trade" equilibrium.
C)equilibrium "no-trade" quantity demanded.
D)surplus at various prices above the "no-trade" equilibrium.
E)shortage at various prices above the "no-trade" equilibrium.
Q3) A country with a strong bargaining power is likely to direct the terms of trade in its favor.
A)True
B)False
Q4) International trade permits greater consumption than would be possible from the domestic production alone.
A)True
B)False
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Chapter 21: International Trade Restrictions
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Sample Questions
Q1) In order to protect key industries, some countries impose taxes on their exports instead of imports, mainly because it is easier to collect taxes from the export industry.
A)True
B)False
Q2) Which of the following statements about international trade restrictions is true?
A)They ensure that only efficient producers survive.
B)They ensure that countries specialize only in those products that they can produce most efficiently.
C)They harm domestic consumers in the majority of cases.
D)They typically benefit foreign producers at the expense of domestic consumers.
E)They ensure that higher-quality goods are provided at lower prices.
Q3) Which of the following is a tool of commercial policy?
A)Corporate income tax
B)Payroll tax
C)Excise duty
D)Tariff
E)Octroi duty
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) Suppose a U.S. investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent. Which of the following statements is true?
A)At maturity, the dollar return from the Canadian bond will be $108.8, regardless of what happens to the exchange rate.
B)The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity.
C)An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S. bond.
D)The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity.
E)The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate.
Q2) World Bank funds are largely acquired through interest earned on the deposits of member nations.
A)True
B)False
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