Applied Microeconomics
Textbook Exam Questions
Course Introduction
Applied Microeconomics focuses on the practical application of microeconomic theories and principles to real-world issues and decision-making processes. The course explores how individuals, firms, and governments allocate scarce resources and respond to incentives, with topics including consumer behavior, production and cost analysis, market structures, and the impact of public policy on markets. Through case studies, empirical data, and problem-solving exercises, students learn to analyze and address contemporary economic problems, assess market outcomes, and evaluate the effects of regulation and ethical considerations on economic activities.
Recommended Textbook Microeconomics Student Value 4th Edition by R.
Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Q1) All ________ economies have been political dictatorships.
A)centrally planned
B)mixed
C)market
D)mixed and market
Answer: A
Q2) When voluntary exchange takes place,only one party gains from the exchange.
A)True
B)False
Answer: False
Q3) What is a household? How do households interact with firms in a market?
Answer: A household consists of all persons occupying a home.Households supply factors of production used by firms to produce goods and services.Households also demand goods and services produced by firms.
Q4) What is a market economy?
Answer: A market economy is an economy in which the decisions of households and firms interacting in markets allocate economic resources.
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Q1) Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 50 hot wings would appear
A)along Dina's production possibilities frontier.
B)inside Dina's production possibilities frontier.
C)outside Dina's production possibilities frontier.
D)at the vertical intercept of Dina's production possibilities frontier.
Answer: A
Q2) Firms
A)have no influence on the circular flow in a market economy.
B)purchase resources in the product market.
C)sell goods in the product market.
D)sell resources in the factor market.
Answer: C
Q3) In the circular flow model,households demand resources such as labor services in the product market.
A)True
B)False
Answer: False
Q4) List the four broad categories of factors of production.
Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good)to increase?
A)an increase in consumer income
B)a drought that sharply reduces barley output
C)a decrease in consumer income
D)unusually good weather that results in a bumper crop of barley
Answer: C
Q2) An increase in the price of MP3 players will result in
A)a smaller quantity of MP3 players supplied.
B)a larger quantity of MP3 players supplied.
C)a decrease in the demand for MP3 players.
D)an increase in the supply of MP3 players.
Answer: B
Q3) An increase in quantity supplied is represented by a rightward shift of the supply curve.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Figure 4-6.What is the value of the deadweight loss after the imposition of the price floor?
A)$600
B)$1,800
C)$2,700
D)$3,300
Q2) Refer to Table 4-3.If a minimum wage of $9.50 is mandated there will be a
A)shortage of 10,000 units of labor.
B)surplus of 10,000 units of labor.
C)shortage of 20,000 units of labor.
D)surplus of 20,000 units of labor.
Q3) Refer to Figure 4-9.For each unit sold,the price sellers receive after the tax (net of tax)is
A)$12.
B)$8.
C)$4.40.
D)$3.
Q4) Government intervention in agriculture began in the Untied States in the 1930s.
A)True B)False
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) The "tragedy of the commons" is a term that refers to
A)tragic events such as forest fires and hurricanes that cause more damage than they should because of the failure of government to develop a common approach to handling disasters.
B)the tendency for a common resource to be overused.
C)the failure of Britain's House of Commons to respond quickly to tragedies such as the Great Plague.
D)free riding that causes too little of a public good to be produced.
Q2) A modern example of the tragedy of the commons is the forests in many poor countries.
A)True
B)False
Q3) Policies that mandate the installation of specific pollution control devices are called A)command and control policies.
B)benefit policies.
C)welfare policies.
D)incentive policies.
Q4) State the Coase theorem.What are some of the limitations of the Coase theorem in practice?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) If a 6 percent increase in income leads to a 4 percent increase in quantity demanded for audio books the income elasticity of demand is
A)-0.67.
B)0.67.
C)1.5.
D)2.
Q2) The price elasticity of supply measures
A)the responsiveness of quantity supplied to changes in input prices.
B)the responsiveness of quantity supplied to changes in technology.
C)the responsiveness of quantity supplied to changes in price.
D)a supplier's ability to produce a good in the face of scarcity.
Q3) The paradox of American farming is
A)the demand for imported luxury food products has risen as the demand for domestic food products has fallen.
B)the demand for food has risen as the number of people who pursue farming as a career has fallen.
C)food has become cheaper and more abundant as the number of farms has decreased.
D)the amount of food produced has increased as the average farm size has fallen.
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) The largest government-run health care system in the world,with 1.7 million employees,is the National Health Service (NHS)in the United Kingdom.The NHS receives its funding primarily from A)tariffs.
B)the World Health Organization.
C)income taxes.
D)private businesses.
Q2) Two consequences of asymmetric information are adverse selection and moral hazard.An important distinction between the two is
A)adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed.
B)moral hazard exists prior to the completion of a transaction while adverse selection occurs after the transaction is completed.
C)adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity.
D)moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity.
Q3) What is asymmetric information?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) If the personal assets of the owners cannot be claimed if the business is bankrupt,the owners are said to have
A)unlimited liability.
B)a proprietorship type of business.
C)limited liability.
D)a partnership type of business.
Q2) The way in which a corporation is structured and the impact a corporation's structure has on the firm's behavior is referred to as
A)corporate taxation.
B)structure composition theory.
C)structural behavior.
D)corporate governance.
Q3) As a business type,corporations ________ in the United States.
A)earn the majority of profits
B)are the most common
C)are the least common
D)are subject to the least amount of taxes
Q4) Who decides who controls a corporation?
Q5) Define a corporation.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) How does the U.S.federal government assist workers who have lost their jobs due to international trade?
Q2) Autarky is a situation in which a country
A)only exports products.
B)only imports products.
C)does not trade with other countries.
D)has no absolute advantage in any production.
Q3) The textbook referred to the following quotation from a Federal Reserve publication: "Trade is a win-win situation for all countries that participate." But many firms and workers oppose free trade policies and protests against globalization have become a regular occurrence at meetings of the World Trade Organization.If trade is a "win-win" situation,why is there strong opposition to free trade and globalization?
Q4) Which of the following is an example of a trade restriction?
A)Japan places a tax on all Korean automobiles.
B)Domestic wine is more expensive than wine imported from Chile.
C)The United States,Canada,and Mexico sign the NAFTA agreement.
D)Consumers prefer German beer to domestic beer.
Q5) Protectionism is usually justified on the basis of one of four arguments.What are those four arguments?
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Chapter 10: Consumer Choice and Behavioral Economics
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Q1) Some online penny auctions charge a fee,such as $1,for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?
Q2) Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?
A)He is not maximizing his utility and should buy more milkshakes.
B)He is maximizing his utility.
C)He is not maximizing his utility and should buy more Subway sandwiches.
D)He is not maximizing his utility because he is not spending all of his income.
Q3) The income effect of a decrease in the price of legal services,a normal good,results in
A)a decrease in the demand for legal services.
B)a decrease in the quantity demanded of legal services.
C)an increase in the quantity demanded of legal services.
D)an increase in the demand for legal services.
Q4) Explain the endowment effect.
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Chapter 11: Technology, production, and Costs
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Q1) In the short-run,changes in output can only be brought about by a change in the quantity of variable inputs.
A)True
B)False
Q2) Refer to Table 11-5.What is the minimum efficient scale of production?
A)100 units
B)200 units
C)300 units
D)400 units
Q3) Refer to Figure 11-2.In the figure above which letter represents the average fixed cost curve?
A)A
B)B
C)C
D)D
Q4) Refer to Figure 11-9.Starting from point d a movement along isoquant1 to point f
A)increases the total cost of production with no change in output.
B)increases output but not the total cost of production.
C)increases the total cost of production and decreases output.
D)increases both the total cost of production and output.
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) A perfectly competitive firm's short-run supply curve is
A)upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve.
B)upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve.
C)perfectly elastic at the market price.
D)horizontal at the minimum average total cost.
Q2) What is always true at the quantity where a firm's average total cost equals average revenue?
A)The firm's revenue is maximized.
B)The firm's profit is maximized.
C)The firm breaks even.
D)Marginal cost equals marginal revenue.
Q3) Refer to Figure 12-5.Total revenue at the profit-maximizing level of output is
A)$1,200.
B)$2,500.
C)$4,800.
D)$6,000.
Q4) What is the difference between "shutting down temporarily" and "exiting the industry"?
Page 14
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?
Q2) Refer to Figure 13-7.If the diagram represents a typical firm in the market,what is likely to happen in the long run?
A)Some firms will exit the market causing the demand to increase for firms remaining in the market.
B)New firms will enter the market causing the demand to decrease for existing firms.
C)Inefficient firms will exit the market and new cost-efficient firms will enter the market.
D)Competition will be intensified as firms strive to make long-run profits.
Q3) When new firms are encouraged to enter a monopolistically competitive market
A)some existing firms must be earning economic profits.
B)they do so because there is insufficient product differentiation.
C)the demand curve facing an existing firm shifts to the right.
D)the marginal cost curve facing an existing firm shifts downwards.
Q4) Why are many companies concerned about brand management?
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) A dominant strategy is
A)an equilibrium where each firm chooses the best strategy,given the strategies of other firms.
B)a strategy chosen by two firms that decide to charge the same price or otherwise not to compete.
C)a strategy that is obviously the best for each firm that is a party to a business decision.
D)a strategy that is the best for a firm no matter what strategies other firms use.
Q2) What is a subgame?
A)It is one that begins at any node of the tree,including the game itself.
B)It is one that begins at any decision node of the tree except the first decision node.
C)It is one that starts at the final decision node of the tree.
D)It is a simultaneous game embedded in a sequential game.
Q3) In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.
A)True
B)False
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Chapter 15: Monopoly and Antitrust Policy
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Q1) Refer to Figure 15-4.Use the figure above to answer the following questions.
a.Identify the curves labeled A and B.Identify the curve which contains both point Y and point Z.Identify the curve which contains both point V and point W.
b.What is the profit-maximizing quantity and what price will the monopolist charge?
c.What area represents total revenue at the profit-maximizing output level?
d.What area represents total cost at the profit-maximizing output level?
e.What area represents profit?
f.What is the profit per unit (average profit)at the profit-maximizing output level?
g.If this industry was organized as a perfectly competitive industry,what would be the profit-maximizing price and quantity?
h.What area represents the deadweight loss as a result of a monopoly?
Q2) As more cities allow competition in the market for cable television,
A)more cable television providers will exit the market.
B)producer surplus in the market will increase.
C)deadweight loss in the market will be reduced.
D)economic profits in the market will increase.
Q3) 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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Q1) Which of the following is not an example of price discrimination?
A)Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels.
B)Unlike foreign tourists,citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor.
C)Senior citizens may purchase special fare tickets for public transportation that are not available to others.
D)Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities.
Q2) Refer to Figure 16-2.If Sensei acts as a monopolist and charges the profit-maximizing price,what is his producer surplus?
A)the area B + D + G
B)the area A + B + C + D + H + G
C)the area C + D + H + G
D)the area A + C + H
Q3) Your text refers to airlines as "The Kings of Price Discrimination." Why is price discrimination common in the airline industry?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If the last worker hired produces four units of output per hour,then to maximize profits the firm should A)not change the number of workers it currently hires.
B)lay off some workers.
C)hire another worker.
D)There is not enough information to answer the question.
Q2) Which of the following economists is best known for exploring the application of economic analysis to human resources issues?
A)Edward Lazear
B)Claudia Goldin
C)David Hammermesh
D)Alan Krueger
Q3) The wage rate is the opportunity cost of A)working.
B)working overtime.
C)leisure.
D)consumption.
Q4) Why are there superstar baseball players but no superstar chiropractors?
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) "For a given supply curve,the excess burden of a tax will be greater when the demand for a product is less elastic than when the demand is more elastic." This statement is A)correct.
B)incorrect because the incidence of the tax,not the burden of the tax,is affected by the elasticity of demand.
C)incorrect.When demand is less elastic,the burden of the tax is smaller than when the demand is more elastic.
D)incorrect.The statement confuses demand with quantity demanded.
Q2) The political process is more likely to serve the interests of individuals whose preferences are in the middle,rather than individuals with preferences that are much to the left or right of the political center.This statement is best explained by which of the following?
A)logrolling
B)the voting paradox
C)the Arrow impossibility theorem
D)the median voter theorem
Q3) What is a Lorenz curve and what is a Gini coefficient?
Q4) What is the difference between the poverty line and the poverty rate?
Page 20
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