Applied Microeconomics Practice
Questions
Course Introduction
Applied Microeconomics focuses on the practical application of microeconomic theories to real-world issues and decision-making processes faced by individuals, firms, and governments. The course covers topics such as consumer and producer behavior, market structures, game theory, market failure, and the role of government intervention. Students will learn to analyze and solve problems related to resource allocation, pricing strategies, public policy, and the effects of regulation, using both quantitative and qualitative methods. Through case studies, empirical data, and policy analysis, the course bridges theoretical concepts with everyday economic challenges, equipping students with analytical tools to interpret and influence microeconomic outcomes.
Recommended Textbook Microeconomics 19th Edition by Paul A. Samuelson
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1486 Verified Questions
1486 Flashcards
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Chapter 1: The Central Concepts of Economics
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Sample Questions
Q1) The scientific method is not applicable to the study of economics because economics is not a true science.
A)True
B)False
Answer: False
Q2) The major difference between capitalism and socialism is that in capitalism the factors of productions are owned individually, while in socialism they are owned collectively.
A)True
B)False
Answer: True
Q3) A society operates on or inside its production-possibility frontier.
A)True
B)False
Answer: True
Q4) The how problem, as well as the what problem, is involved in the production-possibility frontier analysis.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The Modern Mixed Economy
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80 Flashcards
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Sample Questions
Q1) A "mixed economy" involves both private and public decision making.
A)True
B)False
Answer: True
Q2) In an affluent modern society, businesses may have to offer workers more fulfilling jobs.
A)True
B)False
Answer: True
Q3) Primary factors of production are:
A)labor, land, and capital.
B)labor and capital.
C)labor and land.
D)capital and land.
E)irreplaceable inputs.
Answer: A
Q4) The Internet would be considered a negative externality.
A)True
B)False
Answer: False
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Chapter 3: Basic Elements of Supply and Demand Part
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85 Flashcards
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Sample Questions
Q1) The quantity of good X demanded by an individual may depend upon:
A)the individual's income.
B)the price of X.
C)the price of some other goods.
D)all of the above.
E)answers a and b, only.
Answer: D
Q2) In a standard supply-and-demand diagram, what happens when demand decreases?
A)Price declines and quantity demanded rises.
B)Price rises and quantity demanded declines.
C)Price and quantity supplied rise.
D)Price and quantity supplied decline.
E)Price and quantity demanded rise.
Answer: D
Q3) A shift in demand to the right means that people want to buy less at each price.
A)True
B)False
Answer: False
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Chapter 4: Supply and Demand: Elasticity and Applications
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Sample Questions
Q1) How is it possible for a corn farmer to have a bumper crop season and yet make less income?
A)demand for corn is elastic.
B)demand for corn is inelastic.
C)demand for corn is unit elastic.
D)corn has lots of substitutes.
Q2) Everyone agrees that increasing the minimum wage is the best thing for the economy.
A)True
B)False
Q3) When demand displays unitary price elasticity at all parts, total revenue is the same at all prices.
A)True
B)False
Q4) If, for the market depicted in Figure 4-3, the government sets a price ceiling of $25, then the market can't adjust and there is excess supply.
A)True
B)False
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Chapter 5: Demand and Consumer Behavior
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Sample Questions
Q1) Why are most demand curves downward sloping?
A)consumers get tired of goods and use less of them.
B)consumers want more variety in goods and services.
C)a higher price for a good reduces the consumer's desired consumption of a good.
D)a lower price for a good reduces the consumer's desired consumption of a good.
E)none of the above.
Q2) The rule for rational budget allocation by a consumer is that the marginal utility of each good:
A)purchased divided by its price must be equal.
B)purchased multiplied by its price must be equal.
C)must be zero.
D)must be infinite.
E)none of the above.
Q3) Economists assume that consumers make rational and consistent decisions.
A)True
B)False
Q4) When a buyer experiences consumer surplus, the seller experiences a loss.
A)True
B)False
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Chapter 6: Production and Business Organization
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Sample Questions
Q1) All the following indicate possible advantages to the owners of sole proprietorships, except:
A)independence in decisions.
B)potential tax savings..
C)limited liability.
D)lack of red tape.
E)none of the above; all are advantages
Q2) Suppose that production were given by the function recorded in Table 6-1 above.For that schedule to display decreasing returns to scale, the total product associated with 6 units of labor and 40 units of land would have to be:
A)115.
B)117.
C)119.
D)121.
E)125.
Q3) Any adjustment that is possible in the short run must also be considered in the long run.
A)True
B)False
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Page 8
Chapter 7: Analysis of Costs
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Sample Questions
Q1) A fixed cost is:
A)the cost of any input whose per-unit price has been fixed, whether by long-term contract or by some similar means.
B)a cost whose increases are exactly proportional to increases in output.
C)any component included in average cost which enters in AC as the same fixed per-unit amount, no matter what the level of plant output may be.
D)a cost which the firm would incur even if its output were zero.
E)none of the above.
Q2) If output rises and total costs remain fixed, then:
A)average cost will fall.
B)average cost will rise.
C)average cost will eventually increase.
D)fixed cost will eventually rise.
E)variable cost will eventually become fixed at some maximum level.
Q3) Opportunity cost would still exist if I mow the lawn instead of planting the garden.
A)True
B)False
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Chapter 8: Analysis of Perfectly Competitive Markets
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Sample Questions
Q1) In a purely competitive market, the maximum profit comes at that output where marginal cost equals price.
A)True
B)False
Q2) If prices fall in a perfectly competitive industry, then the firms in that industry will in the short run:
A)not decrease in number unless price falls below ATC for some firms.
B)try to reduce production or shut down.
C)keep output at the same level but make losses.
D)advertise.
E)both A and B.
Q3) For the market whose typical firm is characterized in Figure 8-2, the long-run competitive level of output is 5.
A)True
B)False
Q4) For the market whose typical firm is characterized in Figure 8-2, the long-run competitive equilibrium price is $1000.
A)True
B)False
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Chapter 9: Imperfect Competition and Monopoly
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Sample Questions
Q1) Which of the following are major sources of imperfect competition?
A)Government tariffs.
B)Patent laws.
C)Copyright laws.
D)Economies of scale.
E)All of the above.
Q2) A perfect competitor's output in the short run is the quantity that:
A)sets MC equal to MR = P.
B)sets AVC = P.
C)minimizes ATC.
D)sets ATC = P.
E)none of the above are correct.
Q3) If marginal revenue becomes negative, this must mean that the firm's total revenue is declining with additional output.
A)True
B)False
Q4) Microsoft's Windows product generated monopoly power by exploiting network externalities.
A)True
B)False
Page 11
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Chapter 10: Competition Among the Few
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Sample Questions
Q1) An imperfect competitor whose cost and demand relations are as given in Figure 10-3:
A)is making losses.
B)is making economic profits.
C)is making no economic profits.
D)should shut down.
E)is none of the above.
Q2) The AT&T divestiture in 1982 made the telecommunications industry worse.
A)True
B)False
Q3) What are the factors at work in imperfectly competitive markets?
A)economies of scale.
B)costs.
C)barriers to competition.
D)strategic interaction.
E)all of the above
Q4) If consumers were willing to sacrifice the differentiation of a product with many producers, then the price of the product could be lower.
A)True
B)False
Page 12
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Chapter 11: Economics of Uncertainty
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) A given person is risk averse through all relevant levels of income.The expected utility of receiving an extra $5,000 with probability 0.5 and an extra $15,000 with probability 0.5 must be:
A)larger than the utility of receiving an extra $10,000 with certainty.
B)equal to the utility of receiving an extra $10,000 with certainty.
C)smaller than the utility of receiving an extra $10,000 with certainty.
D)larger than or equal to the utility of receiving an extra $10,000 with certainty, depending upon the initial level of income.
E)smaller than or equal to the utility of receiving an extra $10,000 with certainty, depending upon the initial level of income.
Q2) Moral hazard occurs when:
A)people with the highest risk are the most likely ones to buy insurance.
B)insurance reduces a person's incentives to avoid or prevent certain risky events.
C)the government refuses to provide social insurance.
D)risk is spread across markets and time by speculators.
E)none of the above.
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Chapter 12: The Labor Market
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Sample Questions
Q1) A perfectly competitive profit-maximizing firm will pay its workers the MRP<sub>labor</sub>.
A)True
B)False
Q2) If the price of wheat were to increase, the increase could have been caused by:
A)a reduction in the rent demanded by landlords for wheat lands.
B)an upward shift in the consumer demand curve for wheat.
C)a rise in the price of all of wheat's compliments.
D)a rise in the marginal product of wheat lands due to a technological advance.
E)all of the above taken together.
Q3) The marginal revenue product is best described as the:
A)selling price of the last unit of output.
B)increment of total cost resulting from the use of an additional unit of input.
C)marginal product divided by the unit price of the product.
D)marginal product times the marginal revenue received from the sale of an extra unit of output.
E)none of the above.
Q4) Output demand curves are derived from factor demand curves.
A)True
B)False
Page 14
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Chapter 13: Land, Natural Resources, and the Environment
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80 Flashcards
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Sample Questions
Q1) If through collective bargaining a union succeeds in raising its members' wages, then:
A)this would raise total wages earned.
B)the observed wage and employment levels will be indicated by the intersection of the new horizontal wage line with the demand curve.
C)the union must be simultaneously placing restrictions on union membership.
D)this will necessarily cause the demand curve for labor to shift downward.
E)the supply curve of labor will shift upward as workers substitute leisure for work.
Q2) If I used to work 35 hours a week at $6 per hour, and now I work 40 hours a week at $5.25:
A)the income effects and substitution effects are indistinguishable.
B)the income effect is more important to me.
C)the substitution effect is more important to me.
D)my experience proves that labor markets are indeed imperfect.
E)I have shifted the derived demand for my services upward.
Q3) Higher wages will tend to eliminate excess demand in labor markets.
A)True
B)False
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Chapter 14: Capital, Interest, and Profits Part Four:
Applications of Economic Principles
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Sample Questions
Q1) If you wanted to increase tax revenue most efficiently, you should advocate taxing:
A)goods with inelastic supply.
B)goods with inelastic demand like necessities.
C)inputs with inelastic derived demand curves.
D)inputs with totally inelastic supply.
E)any of the above.
Q2) Actions to slow global warming would be considered global public goods.
A)True
B)False
Q3) If a single firm views its payment of rent as a cost, society also sees the rent as a cost.
A)True
B)False
Q4) Charging rents can lessen inefficient "externalities."
A)True
B)False
Q5) Global warming is one of the most worrisome problems facing the world today.
A)True
B)False
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Chapter 15: Government Taxation and Expenditure
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Sample Questions
Q1) If technical change ceased, then the rate of interest would continue to encourage people to increase their saving.
A)True
B)False
Q2) Why would asset prices tend to move inversely with interest rates?
A)their present value decreases as interest rates increase.
B)their present value increases as interest rates increase.
C)their past value decreases as interest rates increase.
D)prices tend to move the same as interest rates.
E)none of the above.
Q3) The real interest yield on capital allows for price changes but not for depreciation.
A)True
B)False
Q4) An increase in land (or labor)will tend to increase the marginal productivity of capital and thus the rate of interest in at least the short run.
A)True
B)False
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Chapter 16: Efficiency Vsequality: The Big Trade-Off
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Sample Questions
Q1) Any tax whose burden depends on the outcome of an economic decision can be expected to create an economic distortion.
A)True
B)False
Q2) An example of a government transfer payment is
A)the cost of a submarine purchased by the government.
B)a mail carrier's wage.
C)payments to General Electric to develop nuclear energy.
D)the salary of a Department of State employee.
E)unemployment insurance compensation.
Q3) Transfer payments hardly ever create inefficiencies because they simply transfer money from the hands of one set of people and deliver into the hands of another set of people.
A)True
B)False
Q4) Laissez-faire policies lapsed in response, at least in part, to exaggerated business cycle swings in the aggregate economy.
A)True
B)False
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Chapter 17: International Trade
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Sample Questions
Q1) Given the social constraint illustrated in Figure 17-4, the redistribution cost associated with perfect equality would, in dollar terms, equal two times the length of AC.
A)True
B)False
Q2) Income differentials within a country can be decreased by:
A)trade barriers between areas.
B)uniform growth in population.
C)technological change in an import competing industry.
D)labor and capital mobility.
E)none of the above.
Q3) An efficient market economy will automatically produce a relatively equitable distribution of income.
A)True
B)False
Q4) Discrimination has no role in explaining the incidence of poverty in the United States in the 1990s.
A)True
B)False
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Page 19
Chapter 18: Overview of Macroeconomics
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Sample Questions
Q1) The United States today is a high-tariff country relative to its past.
A)True
B)False
Q2) In most countries, open trade has increased the standard living.
A)True
B)False
Q3) Before trade, Country A illustrated in Figure 18-2 will:
A)produce OA and consume OC.
B)consume OA and produce OC.
C)produce OA and consume OA.
D)produce OB and consume OB.
E)produce OC and consume OC.
Q4) Suppose the country, importing oil in Figure 18-4 puts on a prohibitive tariff.The smallest prohibitive tariff would be:
A)$0, since there is no trade at the current price.
B)$5.
C)$10.
D)$20.
E)impossible to determine exactly without more information.
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Chapter 19: Geometrical Analysis of Consumer Equilibrium
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Sample Questions
Q1) Consumer equilibrium on an indifference map is at:
A)any intersection of the budget line and an indifference curve.
B)any point on the highest indifference curve shown on the indifference map.
C)that point where the budget line is tangent to an indifference curve.
D)any point inside the budget line.
E)any point on the budget line.
Q2) In Figure 5A-2, U(3)is unattainable if the household's budget constraint is BD.
A)True
B)False
Q3) Refer to Figure 5A-1.If X costs $6 per unit and Y costs $5 per unit, what is the income of this household?
A)$25.
B)$30.
C)$36.
D)Not enough information.
E)None of the above.
Q4) The elasticity of the budget line equals the price ratio of the two goods.
A)True
B)False
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Chapter 20: Production Cost Theory and Decisions of the Firm
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Sample Questions
Q1) If the price of one factor increases, then the firm will find a new least-cost factor combination by shifting its lowest equal-cost line along its same equal-product curve.
A)True
B)False
Q2) The equal-product curve is a locus of points of constant output which may be produced with varying combinations of inputs.
A)True
B)False
Q3) If point D is the least-cost factor combination for Q = 100 when the price of labor = $5 and the price of land = $4 for Table 7A-1, what is the (marginal productivity of labor)/(marginal productivity of capital)?
A)1
B)1.25
C)1.5
D)2
E)It cannot be determined from the information given.
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