Applied Microeconomics
Test Preparation
Course Introduction
Applied Microeconomics explores the practical application of microeconomic theories and principles to real-world situations and decision-making processes. The course examines topics such as consumer behavior, firm production and cost analysis, market structures, pricing strategies, and the impact of government regulation. Students learn to use quantitative tools and economic models to analyze market outcomes, assess policy implications, and address issues in fields including labor, health care, environmental economics, and public finance. Through case studies and empirical research, the course develops analytical skills essential for interpreting economic data and formulating effective solutions to contemporary economic challenges.
Recommended Textbook Microeconomics 5th Edition by Glenn Hubbard
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18 Chapters
4688 Verified Questions
4688 Flashcards
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Chapter 1: Economics: Foundations and Models
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233 Verified Questions
233 Flashcards
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Sample Questions
Q1) What is a firm? What other terms do economists use interchangeably with the term "firm"?
Answer: A firm is an organization that produces a good or service.Firms are also called companies or businesses.
Q2) Which of the following is motivated by an equity concern?
A) Some states have transferred funds to food bank programs in order to increase benefits to lower-income families.
B) Following the implementation of subsidies for energy conservation, household demand for rooftop solar panels increased quite significantly in California.
C) The United Network for Organ Sharing advocates a system of rationing scarce kidneys that would favor young patients over old in an effort to wring more life out of donated organs.
D) The United States offers patent protection to pharmaceutical manufacturers to prevent others from duplicating their products.
Answer: A
Q3) What is a marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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3
Chapter
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259 Flashcards
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Sample Questions
Q1) An inward shift of a nation's production possibilities frontier can occur due to A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labor force.
Answer: B
Q2) Refer to Figure 2-11.One segment of the circular flow diagram in the figure shows the flow of labor services from market K to economic agents J.What is market K and who are economic agents J?
A) K = factor markets; J = households
B) K = product markets; J = households
C) K = factor markets; J = firms
D) K = product markets; J = firms
Answer: C
Q3) Refer to Figure 2-4.A movement from Y to Z
A) represents an increase in the demand for plastic products.
B) could occur because of general technological advancements.
C) is the result of advancements in food production technology.
D) is the result of advancements in plastic production technology.
Answer: D
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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242 Flashcards
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Sample Questions
Q1) If,in response to a decrease in the price of grapes,the quantity of grapes demanded increases,economists would describe this as
A) an increase in demand.
B) an increase in quantity demanded.
C) a change in consumer income.
D) an increase in consumers' taste for coffee.
Answer: B
Q2) A change in all of the following variables will change the market demand for a product except
A) the price of the product.
B) population and demographics.
C) income.
D) tastes.
Answer: A
Q3) Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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208 Verified Questions
208 Flashcards
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Sample Questions
Q1) Refer to Figure 4-3.What is the value of the deadweight loss at a price of $18?
A) $100
B) $180
C) $660
D) $1,040
Q2) What is economic surplus? When is economic surplus at a maximum?
Q3) Refer to Figure 4-1.If the market price is $2.00,what is the consumer surplus on the first burrito?
A) $0.50
B) $1.00
C) $2.00
D) $7.50
Q4) Refer to Table 4-4.If a minimum wage of $11.50 an hour is mandated,what is the quantity of labor demanded?
A) 40,000
B) 570,000
C) 610,000
D) 1,180,000
Q5) What is a black market?
Q6) What is the difference between scarcity and a shortage? Page 6
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Page 7
Chapter 5: Externalities, environmental Policy, and Public Goods
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267 Verified Questions
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Sample Questions
Q1) Negative externalities and the tragedy of the commons are problems that have a common source.What is this common source?
A) self-interest motives of producers and consumers
B) a lack of concern for human rights
C) a lack of competition
D) a lack of clearly defined and enforced property rights
Q2) Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry,installing this equipment may not be the most cost effective method of reducing pollution.
A)True
B)False
Q3) State the Coase theorem.
Q4) Refer to Figure 5-15.Identify the area that shows the deadweight loss from overfishing.
A) egh
B) ekh
C) efh
D) eghk
Q5) What is an externality?
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product this product is
A) an income elastic good.
B) an inferior good.
C) a necessity.
D) a luxury good.
Q2) Suppose at the current price,the demand for copper is estimated at -3.14.What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?
A) Sales revenue falls.
B) Sales revenue rises.
C) Sales revenue remains unchanged because copper is a necessity for most industries.
D) It cannot be determined without information on prices.
Q3) Suppose the current price of oil is $90 a barrel and the quantity supplied is 800 million barrels per day.If the price elasticity of supply for oil in the short run is estimated at 0.5,use the midpoint formula to calculate the percentage change in quantity supplied when the price of oil rises to $98 a barrel.
Q4) Briefly explain the economic concept of elasticity.
Page 9
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Chapter 7: The Economics of Health Care
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169 Verified Questions
169 Flashcards
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Sample Questions
Q1) Of the following high-income countries,which has the lowest mortality ratio for cancer?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
Q2) Based on the current rate of growth,health care spending as a percentage of GDP through Medicare,Medicaid,and other U.S.government programs is expected to
A) stabilize within the next 20 years.
B) account for a majority of spending as a percentage of GDP within 5 years.
C) slow down during this decade.
D) more than double over the next 40 years.
Q3) In the United States in 2012,about two-thirds of those who were not covered by health insurance
A) are single and unemployed.
B) live in families in which at least one member has a job.
C) live in families in which all members are unemployed.
D) are retired from the workforce.
Q4) What are the main sources of health insurance in the United States?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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278 Verified Questions
278 Flashcards
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Sample Questions
Q1) In addition to requiring that CEO's personally certify the accuracy of financial statements,the Sarbanes-Oxley Act of 2002 also requires that
A) CEO's conduct audits of their corporations themselves.
B) firms raise funds for expansion through the sale of bonds only, not stocks.
C) auditors disclose any potential conflicts of interest.
D) corporations issue financial statements monthly rather than quarterly.
Q2) A corporation is the type of business has ________ government rules and regulations affecting it.
A) no
B) the fewest
C) the most
D) only federal
Q3) Which type of business has the most government rules and regulations affecting it?
A) sole proprietorship
B) partnership
C) corporation
D) They all have the same set of rules and regulations affecting them.
Q4) How is economic profit found?
Q5) Briefly describe the Sarbanes-Oxley Act and explain why it was passed.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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189 Flashcards
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Sample Questions
Q1) Refer to Figure 9-2.Without the tariff in place,the United States consumes
A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.
Q2) Refer to Table 9-6.Which country has a comparative advantage in producing clocks?
A) Denmark
B) Belize
C) both countries
D) neither country
Q3) The U.S.economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.
A)True
B)False
Q4) What is autarky?
Q5) What are the four main sources of comparative advantage? Briefly explain each source and provide examples.
Q6) What is dumping? Who benefits and who loses from dumping?
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Chapter 10: Consumer Choice and Behavioral Economics
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302 Verified Questions
302 Flashcards
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Sample Questions
Q1) A network externality occurs when
A) there is production cost savings from being networked with suppliers.
B) there is production cost savings from being networked with buyers.
C) the usefulness of a good is affected by how many others use the good.
D) the usefulness of a good is affected by celebrities who use the good.
Q2) The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.
A)True
B)False
Q3) What is behavioral economics?
A) the study of how people make wealth-maximizing decisions
B) the study of how people behave in the face of scarcity
C) the study of situations in which people act in ways that are not economically rational
D) the study of how people make decisions at the margin
Q4) Total utility is constant along a given indifference curve.
A)True
B)False
Q5) What is an indifference curve? Why can indifference curves never cross?
Q6) Explain the endowment effect.
Page 13
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Chapter 11: Technology, production, and Costs
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330 Verified Questions
330 Flashcards
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Sample Questions
Q1) Explain why the marginal cost of production must increase if the marginal product of a variable resource is decreasing.
Q2) If average product is decreasing,then marginal product must be negative.
A)True
B)False
Q3) As a firm moves to higher isocost lines
A) its profits increase.
B) its revenue increases.
C) its input price ratio increases.
D) its total cost increases.
Q4) Which of the following can a firm do in the long run but not in the short run?
A) decrease the size of its physical plant
B) reduce its rate of output by laying off workers
C) increase its variable costs
D) increase its use of raw materials
Q5) An isoquant is a curve that shows all the combinations of two inputs that will produce the same level of output.
A)True
B)False
Q6) Describe the relationship between marginal cost and average total cost.
Page 14
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Chapter 12: Firms in Perfectly Competitive Markets
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298 Flashcards
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Sample Questions
Q1) Which of the following is a characteristic of a firm in a perfectly competitive market?
A) The firm cannot make a profit in the short run because it is too small a part of the total market.
B) The firm can make a profit in the long run but not in the short run.
C) The firm can sell as much as it wants without having to lower its price.
D) The firm must lower its price in order to increase quantity demanded.
Q2) In a perfectly competitive market the term "price taker" applies to
A) sellers and buyers.
B) firms but not buyers.
C) buyers but not sellers.
D) only the smallest sellers and buyers.
Q3) Which of the following is a characteristic of an oligopolistic market structure?
A) There are few dominant sellers.
B) Each firm sells a unique product.
C) It is easy for new firms to enter the industry.
D) Each firm need not react to the actions of rivals.
Q4) What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?
Q5) Under what conditions should a competitive firm shut down in the short run?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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278 Flashcards
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Sample Questions
Q1) A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.
A)True
B)False
Q2) Although advertising raises the price of a monopolistic competitor's product,it does confer a benefit to consumers.Which of the following is a benefit to consumers?
A) Advertising acts as a barrier to entry.
B) Advertising engenders brand loyalty.
C) Advertising could provide consumers with useful information about new products and enable them to comparison shop.
D) Advertised products tend to be of higher quality so consumers feel special when they consume advertised products.
Q3) Both the perfectly competitive firm and the monopolistically competitive firm produce at the output where marginal revenue equals marginal cost (MR = MC)but only the perfectly competitive firm achieves allocative efficiency.Explain why this is the case.
Q4) 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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262 Flashcards
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Sample Questions
Q1) All of the following are examples of oligopolistic markets except A) the broadcasting industry
B) aircraft manufacture
C) college bookstores
D) seafood restaurant chains
Q2) If an industry is made up of five identical firms,the four-firm concentration ratio is
A) 5%.
B) 20%.
C) 80%.
D) 100%.
Q3) Refer to Table 14-8.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?
A) No, neither firm can gain by cheating.
B) Yes, but only Brawny Juice is in a position to gain by cheating.
C) Yes, but only Power Fuel is in a position to gain by cheating.
D) Yes, either firm can gain if it alone cheats.
Q4) The most important barrier to entry is economies of scale.
A)True
B)False
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market.This reflects which of the following barriers to entry?
A) control of a key resource
B) network externalities
C) entry blocked by government action
D) economies of scale creating a natural monopoly
Q2) Refer to Figure 15-15.If the government regulates Erickson Power Company so that the firm can earn a normal profit,the price would be set at ________ and the output level is ________.
A) P<sub>1</sub>, Q<sub>4</sub>
B) P<sub>2</sub>, Q<sub>3</sub>
C) P<sub>2</sub>, Q<sub>2</sub>
D) P<sub>3</sub>, Q<sub>2</sub>
Q3) Refer to Figure 15-6.The monopolist's total cost is
A) $1,116.
B) $1,240.
C) $1,660.
D) $1,726.40.
Q4) If you own the only bookstore in a small town,do you have a monopoly?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) What is meant by the "law of one price"?
A) Identical products should sell for the same price everywhere.
B) A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices.
C) This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company) to charge the same price for the same good or service in different states.
D) Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.
Q2) Erin and Deidre,two residents in Ithaca,New York,are planning a trip to Boston.Erin,the sales manager for a large retailer,has to attend a business meeting.Deidre,a college student on vacation,is planning a leisurely trip to visit friends and relatives.Whose demand curve for air travel is likely to be more elastic?
A) Erin
B) Deidre
C) There is no difference in their price elasticities of demand.
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information.
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Page 19
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) The typical labor supply curve is upward-sloping but it is possible for the curve to be backward bending - negatively sloped - at very high wage levels.Which of the following would cause a backward bending supply curve?
A) This would occur when the income effect from an increase in the wage becomes larger than the substitution effect.
B) This would occur when the substitution effect from an increase in the wage becomes larger than the income effect.
C) This would occur if leisure is an inferior good.
D) This would occur when a large number of workers choose leisure rather than employment at low wages; only a very large increase in the wage will lead these workers to prefer employment to leisure.
Q2) Which of the following factors will not cause the labor demand curve to shift?
A) increases in human capital
B) changes in technology
C) change in the price of the product produced with labor
D) the wage rate
Q3) Why do professional basketball players earn more than police officers? Illustrate this situation graphically.
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Sample Questions
Q1) According to the benefits-received principle of taxation
A) individuals who receive the benefits from a government program should pay the taxes that support the program.
B) because high income individuals receive the most benefits from government programs, they should pay more taxes than lower income individuals.
C) people in the same economic situation should bear an equal share of the tax burden.
D) the benefits of government programs such as national defense are shared equally by all people; therefore, the burden of paying for these programs should be shared equally.
Q2) What is the difference between the poverty line and the poverty rate?
Q3) The complexity of the U.S.federal income tax system results in significant annual deadweight losses.The opportunity cost of the hours taxpayers spend on record keeping and completing their tax returns amounts to billions of dollars.
a. If the tax system was simplified,how would this benefit the economy?
b. Why hasn't the tax system been simplified?
Q4) What is the relationship between market failure and government failure?
Q5) What is meant by "tax incidence"?
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