Applied Microeconomics Final
Exam
Course Introduction
Applied Microeconomics explores the practical application of microeconomic theories to real-world issues and decision-making processes faced by individuals, firms, and governments. The course covers core concepts such as consumer and producer behavior, market structures, pricing strategies, and the role of government regulation. Emphasis is placed on analyzing case studies, empirical data, and current events to understand how microeconomic principles are used to solve problems in various industries, including labor markets, public policy, and resource allocation. By the end of the course, students will be equipped with the analytical tools needed to interpret economic outcomes and make informed decisions in a dynamic economic environment.
Recommended Textbook
Microeconomics 5th Edition by Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) Why is it necessary for all economic systems to not only provide people with goods and services,but also restrict them from getting as much of these goods and services as they wish?
A) Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.
B) Failure to do this could lead to an inequitable allocation of goods and services produced.
C) Failure to do this could lead to drastic shortages of good and services.
D) Failure to do this could reduces efficiency and leads to an inequitable allocation of output.
Answer: A
Q2) "The distribution of income should be left to the market" is an example of a positive economic statement.
A)True
B)False
Answer: False
Q3) What is a marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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Q1) Refer to Table 2-8.What is China's opportunity cost of producing one digital camera?
A) 0.04 pounds of wheat
B) 4 pounds of wheat
C) 25 pounds of wheat
D) 40 pounds of wheat
Answer: C
Q2) Which of the following is not a factor of production?
A) an acre of farmland
B) a drill press in a machine shop
C) the manager of the local tire shop
D) $1,000 in cash
Answer: D
Q3) Comparative advantage means the ability to produce a good or service
A) at a lower selling price than any other producer.
B) at a lower opportunity cost than any other producer.
C) of a higher quality than any other producer.
D) at a higher profit level than any other producer.
Answer: B
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Refer to Figure 3-1.A decrease in the price of a substitute good would be represented by a movement from
A) A to B.
B) B to A.
C) D<sub>1</sub> to D<sub>2</sub>.
D) D<sub>2 </sub>to D<sub>1</sub>.
Answer: D
Q2) A change in supply is represented by a shift of the supply curve.
A)True
B)False
Answer: True
Q3) An increase in the number of firms in a market will cause the quantity of a good supplied to increase.
A)True
B)False
Answer: False
Q4) Market equilibrium occurs where supply equals demand.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.
A) total
B) unintended
C) additional
D) surplus
Q2) Government intervention in agricultural markets in the U.S.began in the A) 1920s.
B) 1930s.
C) 1950s.
D) 1970s.
Q3) Refer to Table 4-6.The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick.The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units.What is the value of consumer surplus?
A) $100 thousand
B) $200 thousand
C) $600 thousand
D) $800 thousand
Q4) What is a black market?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) A product is considered to be rivalrous if
A) you can keep those who did not pay for the item from enjoying its benefits.
B) you cannot keep those who did not pay for the item from enjoying its benefits.
C) your consumption of the product reduces the quantity available for others to consume.
D) it is jointly owned by all members of a community.
Q2) Economists working at federal government agencies have estimated that the marginal social cost of carbon is about
A) $2 per ton.
B) $9 per ton.
C) $21 per ton.
D) $47 per ton.
Q3) Private producers have no incentive to provide public goods because
A) the government subsidy granted is usually insufficient to enable private producers to make a profit.
B) production of huge quantities of public goods entails huge fixed costs.
C) they cannot avoid the tragedy of the commons.
D) once produced, it will not be possible to exclude those who do not pay for the good.
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Q1) If firms do not increase their quantity supplied when price changes,then supply is A) perfectly elastic.
B) perfectly inelastic.
C) relatively inelastic.
D) elastic.
Q2) Suppose at a price of $50,Yoshi's Jazz Bar sells 20 tickets to its nightly jazz performance and at a price of $40,it sells 25 tickets.Based on this information,the demand for Yoshi's jazz performance is elastic.
A)True
B)False
Q3) Consider a demand curve that has a constant elasticity value of 0.What happens to quantity demanded and total revenue when price increases?
A) The quantity demanded and total revenue remain the same.
B) The quantity demanded does not change but total revenue increases.
C) The quantity demanded and total revenue fall to zero.
D) The quantity demanded does not change but total revenue decreases.
Q4) Explain the relationship between price elasticity of demand and total revenue.
Page 8
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Chapter 7: The Economics of Health Care
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Q1) In a market with positive externalities,the market equilibrium price will be less than the efficient equilibrium price.
A)True
B)False
Q2) A goal of market-based reforms of the health care system is to give patients an incentive to pay more attention to the prices of medical services.This would tend to ________ economic efficiency by ________ the costs of medical services
A) increase; increasing
B) increase; decreasing
C) decrease; increasing
D) decrease; decreasing
Q3) Of the following U.S.presidents,which was the first to propose a national health insurance program to Congress?
A) Barack Obama
B) Bill Clinton
C) John F. Kennedy
D) Harry Truman
Q4) What is the main difference between a single-payer health care system and socialized medicine?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Q1) If you own a bond with a seven percent coupon rate and new bonds are paying five percent,what will happen to your bond's market price?
Q2) What is a firm's balance sheet?
Q3) Of the different types of businesses,a corporation has the ________ government rules and the ________ government regulations affecting it.
A) least; least
B) least; most
C) most; least
D) most; most
Q4) A bond is a financial security that represents
A) ownership in a corporation.
B) the portion of profits paid to shareholders.
C) the interest rate paid on a share of stock.
D) a promise to repay a fixed amount of funds.
Q5) The price of a financial asset should be equal to
A) the face value of the asset.
B) the present value of the sum of the coupon payments and the interest rate.
C) the face value of the asset divided by the interest rate.
D) the present value of payments to be received from owning that asset.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Refer to Figure 9-2.The increase in domestic producer surplus as a result of the tariff is equal to the area
A) C.
B) C + G.
C) A + C + G.
D) C + D + G + H + I.
Q2) In 1930,the U.S.government attempted to help domestic firms that were harmed by the Great Depression by
A) establishing the General Agreement on Tariffs and Trade (GATT).
B) passing the Smoot-Hawley Tariff.
C) establishing the World Trade Organization (WTO).
D) passing the North American Free Trade Agreement (NAFTA).
Q3) Refer to Figure 9-1.Suppose the government allows imports of leather footwear into the United States.What will be the quantity demanded?
A) 5 units
B) 10<sub> </sub>units
C) 15 units
D) 20 units
Q4) Distinguish between a voluntary export restraint and a quota.
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Q1) Identify the one statement that does not demonstrate how social effects influence consumer choice.
A) Students in an Economics class are required to purchase a textbook assigned by the professor.
B) There is utility gained from consuming goods or services that others are consuming.
C) Some products that people consume are determined by the social popularity of the products.
D) Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the internet for others to see.
Q2) In the utility maximizing model,consumer preferences are assumed to be transitive.What does this mean?
A) that consumers prefer more of a good to less
B) that consumers have the freedom to change their preferences from time to time
C) that consumers have preferences that are relatively consistent in the time period under consideration
D) that consumers go through cycles in their consumption behavior
Q3) What is an indifference curve? Why can indifference curves never cross?
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Chapter 11: Technology, production, and Costs
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Q1) If production displays diseconomies of scale,the long run average cost curve is
A) above the short run average total cost curve.
B) above the long run marginal cost curve.
C) upward sloping.
D) downward sloping.
Q2) Refer to Table 11-3.The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes.The capital used to produce the boxes is fixed.The average product of labor will equal 60 boxes when Manny hires
A) the second worker.
B) the third worker.
C) the fourth worker.
D) the fifth worker.
Q3) The change in a firm's total cost from producing one more unit of a good or service is
A) the result of economies of scale.
B) the definition of marginal product
C) the definition of marginal cost.
D) impossible to observe in large firms with many manufacturing plants.
Q4) What are economies of scale? What are diseconomies of scale?
Page 13
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) Refer to Table 12-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?
A) Q = 1; profit = -$10.
B) Q = 3; profit = -$7.50
C) Q = 0; profit = -$10.00
D) Price and profit cannot be determined from the information given.
Q2) Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102,then the firm is probably producing more than its profit-maximizing quantity.
A)True B)False
Q3) In an increasing-cost industry the long-run supply curve is upward sloping.
A)True B)False
Q4) What is meant by the term "long-run competitive equilibrium?
Q5) The market demand curve in a perfectly competitive market is downward-sloping.
A)True B)False
Q6) Under what conditions should a competitive firm shut down in the short run?
Page 14
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Marketing refers to all the activities necessary for a firm to sell a product to a consumer.
A)True
B)False
Q2) Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.
A)True
B)False
Q3) Refer to Figure 13-17.What is the amount of excess capacity?
A) Q<sub>h</sub> - Q<sub>f</sub> units
B) Q<sub>j</sub> - Q<sub>f</sub> units
C) Q<sub>j</sub> - Q<sub>h</sub> units
D) Q<sub>h</sub> - Q<sub>g</sub> units
Q4) Refer to Table 13-4.Victoria's profit-maximizing output is where
A) total profit equals $3.
B) marginal revenue and marginal cost both equal $4.
C) marginal revenue and marginal cost both equal $3.
D) marginal cost is at its minimum value.
Q5) What is meant by "excess capacity"? How does it relate to consumer utility?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) Firms in an oligopoly are said to be interdependent.What does this mean?
Q2) The approach economists use to analyze competition among oligopolists is called A) marginal analysis.
B) game theory.
C) oligopoly theory.
D) competition among the few.
Q3) Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.
Q4) Refer to Figure 14-4.In a real world situation involving Rainbow Writer and Odeon,what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?
A) Odeon is also negotiating with Swift Colors, Rainbow Writer's chief rival.
B) Odeon's competitors are also interested in bundling Rainbow Writer's software.
C) Odeon hires a software developer to begin developing its own proprietary color labeling software.
D) Odeon is considering new distribution outlets for its products.
Q5) What is a sequential game? How are decision trees used to analyze sequential games?
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Chapter 15: Monopoly and Antitrust Policy
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Q1) Refer to Figure 15-2.If the firm's average total cost curve is ATC<sub>3</sub>,the firm will
A) suffer a loss.
B) break even.
C) make a profit.
D) face competition.
Q2) Identify two ways by which the government controls monopolies?
Q3) Refer to Figure 15-12.If the firm maximizes its profits,the deadweight loss to society due to this monopoly is equal to the area
A) ABF.
B) ABEG.
C) ACE.
D) EFG.
Q4) Refer to Figure 15-6.The monopolist earns a profit of
A) $0.
B) $170.
C) $248.
D) $372.
Q5) Identify four reasons for high entry barriers.Briefly explain each reason.
Q6) If you own the only bookstore in a small town,do you have a monopoly?
Page 17
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Chapter 16: Pricing Strategy
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Q1) Which of the following antitrust laws forbade firms to engage in price discrimination if the effect would lessen competition or create a monopoly?
A) the Sherman Act
B) the Clayton Act
C) the Robinson-Patman Act
D) the Cellar-Kefauver Act
Q2) The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called
A) yield management.
B) elasticity management.
C) brand management.
D) marketing.
Q3) Some firms require consumers to pay an initial fee for the right to buy their product and an additional fee for each unit of the product they purchase.This practice is referred to as
A) odd pricing.
B) dual pricing.
C) a two-part tariff.
D) intertemporal pricing.
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Refer to Figure 17-2.If the wage rate is $20,how many workers should Becca hire?
A) 6
B) 5
C) 4
D) 3
Q2) What is a factor market?
A) It is a market where financial instruments are traded.
B) It is a market where stocks and bonds are traded.
C) It is a market producers buy consumption and capital goods.
D) It is a market where resources used to produce final goods are traded.
Q3) Which of the following would cause an increase in the equilibrium wage?
A) The supply of labor increases more than the demand for labor.
B) The supply of jobs increases more than the demand for jobs.
C) The demand for labor increases faster than the supply of labor.
D) The supply of labor increases and the demand for labor decreases.
Q4) Refer to Figure 17-4.Which of the following is true at W<sub>0</sub>?
A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is positively sloped.
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Q1) The median voter theorem will be an accurate predicator of the outcomes of elections
A) only when voter turnout is very high.
B) when a majority of voters have preferences very similar to those of the median voter.
C) when a majority of voters have preferences different from those of the median voter.
D) regardless of whether preferences among voters are similar or different from those of the median voter.
Q2) The term tax incidence refers to
A) the degree of progression of a tax.
B) the actual division of the burden of a tax between buyers and sellers in a market.
C) the amount of revenue government collects from a tax imposed on a good or service.
D) whether the burden of a tax rests more heavily on those with higher incomes or those with lower incomes.
Q3) Describe the main factors economists believe cause inequality of income.
Q4) What is the difference between the poverty line and the poverty rate?
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