Economics Major Core: Microeconomics
Exam Answer Key
Course Introduction
This course provides a comprehensive introduction to microeconomics, focusing on the decision-making processes of individuals and firms, and how these decisions shape market outcomes. Students will explore fundamental concepts such as supply and demand, elasticity, consumer choice, production and costs, and various market structures including perfect competition, monopoly, and oligopoly. The course also examines the role of government intervention and its impact on economic efficiency and welfare. Emphasis is placed on developing analytical skills and applying microeconomic theories to real-world issues and policy debates.
Recommended Textbook Microeconomics 2nd Edition by
Daron Acemoglu
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Page 2
Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Define opportunity cost.A student who has just graduated from college has three job offers: the first job pays $35,000 a year,the second job pays $23,000 a year,and the third one pays $15,000 a year.What is the student's opportunity cost of taking the first job?
Answer: Opportunity cost is the best alternative use of a resource.It is what an economic agent is giving up when he chooses a particular option.If the individual decides to take the first job,he will earn $35,000 a year.The opportunity cost of taking this job is the next-best offer that he could have taken.Therefore,the opportunity cost of the first job is $23,000 a year.
Q2) ________ is the study of how individuals,households,governments,and firms make choices and how those choices affect prices,the allocation of resources,and the well-being of other agents.
A) Cost-benefit analysis
B) Microeconomics
C) Macroeconomics
D) Empiricism
Answer: B
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Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) Which of the following is an example of a natural experiment?
A) A laboratory research on the effectiveness of solar power as an alternative source of fuel
B) A research on the effectiveness of a new medicine among some voluntary participants
C) A research on the effect of air pollution on lung disorders by observing the health conditions of people who stay close to industrial areas and those who stay away from industries
D) A study on the benefits of regular exercise by paying for the membership fees at fitness clubs for one-half of the participants
Answer: C
Q2) A variable that is potentially affected by an experimental treatment is referred to as a(n)________.
A) omitted variable
B) independent variable
C) dependent variable
D) compulsory variable
Answer: C
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Chapter 3: Optimization: Doing the Best You Can
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Q1) Which of the following statements is true of marginal analysis?
A) Marginal analysis is a tool used in optimization using total value.
B) Marginal analysis compares the consequences of doing one more step of something.
C) Marginal analysis of alternatives will mostly give an outcome different from optimization using total value.
D) Marginal analysis involves the calculation of the total net benefits of all the available alternatives.
Answer: B
Q2) In a marketplace,the rental price of apartments is determined by negotiations between ________.
A) renters and regulators
B) renters and landlords
C) landlords and regulators
D) politicians and regulators
Answer: B
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Chapter 4: Demand, supply, and Equilibrium
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Sample Questions
Q1) Refer to the table above.If the market supply of bread at a price of $3 per loaf is 45 loaves,Seller 3's supply is ________ loaves.
A) 15
B) 18
C) 24
D) 20
Q2) Define marginal cost.Is it different from the concept of willingness to accept?
Q3) Which of the following statements correctly describes perfectly competitive market equilibrium?
A) Competitive markets converge to the price at which quantity supplied and quantity demanded are equal.
B) Government intervention is necessary for the competitive market to reach equilibrium.
C) There is always excess supply or excess demand when the competitive market is in equilibrium.
D) Multiple equilibriums are possible for a given set of demand and supply curves in a competitive market.
Q4) What are the key features of a perfectly competitive market?
Q5) Explain the role of prices in a market.
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Chapter 5: Consumers and Incentives
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Q1) In a perfectly competitive market,all consumers ________.
A) may buy one or many unit of the good, without the price changing
B) bid the lowest price for the good they want to consume C) tend to buy equal amounts of a good D) have exactly the same tastes and preferences
Q2) The negative value of the price elasticity of demand for a good can be attributed to ________.
A) the Law of Demand
B) the Law of Supply
C) the Law of Increasing Marginal Utility
D) the Law of Diminishing Marginal Rate of Substitution
Q3) Joey's budget constraint is given by $ ________ PR + $ ________ RS = $________.
Q4) Refer to the figure above.Which of the following statements is true?
A) The opportunity cost of buying one chair is 5 tables.
B) The price of tables is more than the price of chairs.
C) The opportunity cost of buying tables increases as more tables are bought.
D) The opportunity cost of buying one table is 7 chairs.
Q5) What are the determinants of the price elasticity of demand?
Q6) Define a budget set.Is it the same as a budget constraint?
Q7) What are the factors that determine a buyer's purchasing decision?
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) Producer surplus for a perfectly competitive firm is ________.
A) always zero
B) the same as profit
C) the area under firm's total cost curve and above marginal cost
D) the area under the market price and above the firm's marginal cost curve
Q2) Refer to the figure above.What is the producer surplus when the price is $70?
A) $800
B) $1,600
C) $2,000
D) $2,800
Q3) A firm with a fixed cost of $300 per month and variable cost of $200 per month decides to shut down.In such a situation,it would lose ________.
A) $200 per month
B) $300 per month
C) $500 per month
D) $0 per month
Q4) Is it true that in the long run it is impossible for firms functioning in a perfectly competitive market to earn positive economic profits? Explain your answer.
Q5) Differentiate between perfectly elastic supply and perfectly inelastic supply.
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Positive economic profits in a perfectly competitive market imply that ________.
A) producers are earning more than their opportunity cost
B) existing firms are likely to leave the market
C) the cost of production is equalized across producers
D) government intervention is required to stabilize the market
Q2) D.Gale Johnson was an economist at Iowa State and later the University of Chicago who studied Soviet agriculture.Johnson found that on large Soviet collective farms,crops often rotted in the field as mechanical harvesters were not deployed in time for the harvest.They followed a harvest schedule set centrally,and often the harvesting machines sat idle during the peak harvest season.This outcome is an example of ________.Explain your answer.
A) the invisible hand
B) a sunk cost
C) a coordination problem
D) an incentive problem
Q3) Define "reservation values." If a buyer of a product has a reservation value of $10,the seller of the product has a reservation value of $3,and the equilibrium price of the product is determined to be $5,calculate the consumer surplus and the producer surplus.
Q4) What is the economic variable that guides the invisible hand?
Page 9
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Chapter 8: Trade
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Sample Questions
Q1) Trade between two nations ________.
A) results in the maximization of total production
B) reduces global production
C) leads to a maximization of production in one nation and a minimization of production in the other
D) is inefficient compared to a situation where both nations do not engage in international trade
Q2) Refer to the figure above.With currently available resources,point F represents a situation that ________.
A) results if resources are not fully employed
B) can be achieved if consumers demand fewer Web sites than at point C
C) is currently attainable, given available resources
D) is currently unattainable, given available resources
Q3) Refer to the figures above.When Banana Republic opens up to international trade,the domestic sellers in the solar panel market ________.
A) gain the surplus equal to the area B + C
B) gain the surplus equal to the area A
C) lose the surplus equal to the area B + C
D) lose the surplus equal to the area A
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Page 10
Chapter 9: Externalities and Public Goods
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Sample Questions
Q1) ________ is an example of a common pool resource good.
A) Food
B) Water
C) National defense
D) Wi-Fi
Q2) Refer to the figure above.If Good X is a private good,what is the total quantity demanded on the market if the market price is $4?
A) 8
B) 14
C) 12
D) 10
Q3) Which of the following can result in the tragedy of the commons?
A) The use of common pool resources above the socially optimal level
B) A low level of satisfaction derived from the use of common pool resources
C) A high rate of taxation on common pool resources
D) The tendency of consumers to use common pool resources without paying for them
Q4) What is a Pigouvian tax?
Q5) What are pecuniary externalities? Explain with the help of an example.
Q6) How is the market demand curve for a public good derived?
Page 11
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Q1) The government redistributes funds via transfer payments in order to ________.
A) reduce the number of private transactions
B) increase competition among domestic producers
C) finance the operation of its various departments
D) reduce inequality among the citizens
Q2) Refer to the figure above.The producer surplus after the tax imposed on consumer is
A) Region 1
B) Regions 1 and 2
C) Regions 3 and 4
D) Region 4
Q3) In a proportional tax system,________.
A) the average tax rate faced by an individual exceeds the marginal tax rate
B) the marginal tax rate faced by an individual exceeds the average tax rate
C) the average tax rate equals the marginal tax rate
D) the marginal tax rates faced by all households are equal
Q4) Mention some of the problems incurred by black markets.
Q5) Explain the equity-efficiency trade-off.Give an example of the conflicting equity and efficiency outcomes of a policy.
Q6) Why are lump-sum taxes regressive in nature? Page 12
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Chapter 11: Markets for Factors of Production
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Sample Questions
Q1) If the marginal product of capital increases,the firm's ________.
A) demand for capital will decrease
B) quantity demanded of capital will decrease
C) quantity demanded of capital will increase
D) demand for capital will increase
Q2) If the marginal product of a unit of physical capital is 10 units of output and the final good that the physical capital is used to produce is sold for $5,the value of the marginal product of physical capital equals ________.
A) $2
B) $10
C) $20
D) $50
Q3) Refer to the figure above.If the price of the output is $3.00 per unit and the wage is $9.00 per worker,the firm's optimal choice in the short run is to hire ________ workers.
A) 3
B) 4
C) 5
D) 6
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14
Chapter 12: Monopoly
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Sample Questions
Q1) Refer to the scenario above.What is the quantity effect of the price change?
A) $1,400
B) $2,700
C) $5,400
D) $6,750
Q2) Which of the following statements is true?
A) Under monopoly, the seller sets the price of its good below marginal costs.
B) Under perfect competition, sellers set the price of their goods below marginal costs.
C) Under monopoly, prospective buyers may not be able to buy a good even if they have a willingness to pay above marginal costs.
D) Under perfect competition, prospective buyers may not be able to buy a good even if they have a willingness to pay above marginal costs.
Q3) A socially optimal price maximizes ________.
A) consumer surplus and minimizes producer surplus
B) producer surplus and minimizes consumer surplus
C) total surplus
D) deadweight loss
Q4) Differentiate between a patent and a copyright.
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) Refer to the scenario above.In equilibrium,________.
A) both firms will offer a discount
B) neither firm will offer a discount
C) Firm 1 will offer a discount, while Firm 2 will not offer a discount
D) Firm 1 will continue charging the original price, while Firm 2 will offer a discount
Q2) Suppose you and your roommate are trying to decide how to divide up the remaining slice of pizza left over from the night before.You assert that because you went down to the dorm lobby and picked up the pizza,you get to "cut and choose." This is an example of ________.
A) a game tree
B) backward induction
C) commitment
D) first-mover advantage
Q3) Refer to the scenario above.Which of the following is likely to happen if Rita does not confess?
A) Both of them will be let free.
B) Mike will be let free, while Rita will be suspended.
C) 10 points will be deducted from their respective scores.
D) 10 points will be deducted from Rita's score, while Mike will be suspended.
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Page 16
Chapter 14: Oligopoly
and Monopolistic Competition
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Sample Questions
Q1) The market for apples is an example of a(n)________.
A) perfectly competitive market
B) monopolistically competitive market
C) monopoly
D) oligopoly
Q2) In a duopoly with homogeneous products,the best response of a firm is to charge a lower price than its rival as long as ________.
A) the rival's price is above marginal cost
B) the rival's price is below marginal cost
C) the rival's price is above average cost
D) the rival's price is below average cost
Q3) Which of the following market structures has the highest market concentration?
A) A monopoly
B) An oligopoly with differentiated products
C) Perfect competition
D) Monopolistic competition
Q4) Alpha Corp.and Beta Corp.are the only firms in an industry.It is found that Alpha loses its entire market share to Beta when Beta lowers its price.What is the optimum pricing strategy for Alpha?
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Chapter 15: Trade-Offs Involving Time and Risk
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Sample Questions
Q1) Refer to the scenario above.Which of the following statements is true?
A) The present value of Option A > The present value of Option B.
B) The present value of Option A > The present value of Option C.
C) The present value of Option B > The present value of Option C.
D) The present value of Option B > The present value of Option A.
Q2) Present bias implies that ________.
A) a consumer gives much more weight to the future than to the present
B) a consumer gives much more weight to the present than to the future
C) discount weights for delayed consumptions will always equal 1
D) discount weights for delayed consumptions will always be greater than 1
Q3) If the market rate of interest is 8 percent per year,what is the present value of $10,000 to be received for the following periods?
a)After 5 years
b)After 10 years
Q4) Which of the following is most likely to increase an individual's future spending?
A) Paying back a loan in the future
B) Borrowing money today
C) Depositing money in the future
D) Withdrawing money in the future
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Chapter 16: The Economics of Information
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Sample Questions
Q1) How can a buyer of car insurance help reduce the effects of adverse selection?
Q2) The basic idea behind moral hazard is that ________.
A) some economic transactions impose an additional cost on society
B) some economic transactions give rise to an additional benefit to society
C) people tend to take more risks if they do not have to bear the costs of their behavior
D) people do not reveal their true preference for goods that are non-excludable in consumption
Q3) Jane started eating more junk food and taking less care of her health after she bought a life insurance plan.Her behavior is an example of ________.
A) moral hazard
B) adverse selection
C) the paradox of thrift
D) the free-rider problem
Q4) Employees at Xeta Inc.are divided into teams,and workers from each team are assigned jobs.However,management often finds it difficult to measure the effort of each worker,as the output is generated by the team as a whole.What can management do to prevent the workers from shirking?
Q5) Why do people often tend to take risks if they are insured?
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Chapter 17: Auctions and Bargaining
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Q1) In a Dutch auction,the ________ wins the good.
A) bidder who bids up to his value for the good
B) bidder who stops the auction
C) bidder with the lowest value for the good
D) second bidder
Q2) Elly needs to get her leaking faucet repaired as soon as possible.She gets in touch with a plumber,who asks for an unreasonably high fee.If no other plumber is available for work,who has a higher bargaining power? Explain your answer.
Q3) In general,it is common for goods with ________ to be auctioned.
A) low prices
B) relatively few buyers
C) a large number of buyers
D) a large number of sellers
Q4) Refer to the scenario above.If each bidder uses his or her dominant strategy,who will win the auction?
A) John
B) Jacob
C) Alex
D) Maria
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Chapter 18: Social Economics
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Sample Questions
Q1) ________ is the process by which organizations imbue society with their ideology or opinion.
A) Indoctrination
B) Backward induction
C) Anchoring
D) Sniping
Q2) Refer to the scenario above.Which of the following will be true if Harry is known to be trustworthy?
A) Tom and Harry will each receive $100.
B) The equilibrium outcome will be socially inefficient.
C) A unique equilibrium will not occur.
D) Tom and Harry will each receive $50.
Q3) Refer to the scenario above.Which of the following will happen in this case?
A) Neither of them will make any money.
B) Only Elly will make money.
C) Elly will trust her employee, but her employee will defect.
D) Elly will trust her employee, and her employee will cooperate.
Q4) Why do people donate less when it is costlier to give?
Q5) Why do individuals decide to herd?
Q6) What role does information cascade play in job interviews?
Page 21
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