Economics Principles: Microeconomics
Final Exam
Course Introduction
This course introduces the fundamental principles of microeconomics, focusing on how individual consumers, firms, and markets interact to allocate resources in the economy. Key topics include supply and demand analysis, elasticity, consumer choice, production and cost theory, market structures such as perfect competition and monopoly, and the impact of government policies. Students will develop analytical skills to understand real-world economic issues and evaluate the effects of economic decisions on efficiency and welfare.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 12th Edition by Walter Nicholson
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17 Chapters
356 Verified Questions
356 Flashcards
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2
Chapter 1: Preferences and Utility
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Sample Questions
Q1) Indifference curves:
A)may sometimes intersect.
B)are contour lines only of a linear utility function.
C)are convex if the utility function is quasi-concave.
D)shift when prices change.
Answer: C
Q2) For an individual who consumes only two goods,x and y,the opportunity cost of consuming one more unit of x in terms of how much y must be given up is reflected by:
A)the individual's marginal rate of substitution.
B)the market prices of x and y.
C)the slope of the individual's indifference curve.
D)none of the above.
Answer: B
Q3) For this utility function,the MRS:
A)depends on the values of x and y.
B)is always 0.
C)is always 2.
D)is always 4.
Answer: C
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Page 3
Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) Suppose that an individual has a constant MRS of shoes for sneakers of 4:3 (that is,he or she is always willing to give up 3 pairs of sneakers to get 4 pairs of shoes).Then,if sneakers and shoes are equally costly,he or she will:
A)buy only sneakers.
B)buy only shoes.
C)spend his or her income equally on sneakers and shoes.
D)wear sneakers only 3/4 of the time.
Answer: A
Q2) If the price of x falls,the budget constraint:
A)shifts outward in a parallel fashion.
B)shifts inward in a parallel fashion.
C)rotates outward about the x-intercept.
D)rotates outward about the y-intercept.
Answer: D
Q3) An increase in an individual's income without changing relative prices will:
A)rotate the budget constraint about the X-axis.
B)shift the indifference curves outward.
C)shift the budget constraint outward in a parallel way.
D)rotate the budget constraint about the Y-axis.
Answer: C
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Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) The price elasticity of demand for a horizontal demand curve is:
A)0.
B)-1.
C)1.
D)- infinity.
Answer: D
Q2) Which of the following will not cause a demand curve to shift position?
A)A doubling of the good's price
B)A doubling of the price of a closely substitutable good
C)A doubling of income
D)A shift in preferences
Answer: A
Q3) If the compensated (Hicks)and Marshall demand curves for a good intersect,at that point the Marshall curve will be:
A)flatter if this is a normal good.
B)steeper if this is a normal good.
C)flatter if this is an inferior good.
D)horizontal.
Answer: A
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Page 5
Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) Symmetry of net substitution effects is one of the principal conclusions of the theory of utility maximization.Which two mathematical theorems are used to prove this symmetry?
A)Taylor's Theorem and Fundamental Theorem of Calculus
B)Cauchy's Theorem and DeMoivre's Theorem
C)Lagrangian Theorem and Fundamental Theorem of Calculus
D)Envelope Theorem and Young's Theorem
Q2) Two goods are Hicks (net)substitutes if a rise in the price of one causes a(n):
A)decline in the quantity demanded of the other holding nominal income constant.
B)increase in the quantity demanded of the other holding nominal income constant.
C)decline in the quantity demanded of the other holding utility constant.
D)increase in the quantity demanded of the other holding utility constant.
Q3) If goods x and y are complements,then the cross price elasticity of demand between them will be:
A)positive.
B)negative.
C)zero.
D)infinity.
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Chapter 5: Uncertainty
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Sample Questions
Q1) A risk-neutral individual is offered a gamble that promises a gain of $1000 with probability 0.25 and a loss of $300 with probability 0.75.Given this situation,he or she will:
A)definitely take the gamble.
B)definitely not take the gamble.
C)definitely take the gamble if his or her income is high enough.
D)take an action that cannot be determined given the information available.
Q2) More risk-averse people will:
A)hold fewer risky assets because marginal utility is rapidly diminishing.
B)hold fewer risky assets because marginal utility is greater.
C)hold fewer risky assets because rates of return are more uncertain.
D)hold fewer risky assets because marginal utility is negative.
Q3) Risk aversion is best explained by:
A)timidness.
B)increasing marginal utility of wealth.
C)constant marginal utility of wealth.
D)decreasing marginal utility of wealth.
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Chapter 6: Game Theory
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Sample Questions
Q1) A Nash equilibrium is a set of strategies that are mutual:
A)best responses.
B)dominant strategies.
C)Pareto optima.
D)all of the above.
Q2) Which of the following is a true statement about signaling games?
A)In a separating equilibrium,the second mover's posterior beliefs are the same as his priors.
B)In a separating equilibrium,Bayes' rule cannot be used to compute posterior beliefs (because it produces an undefined answer).
C)In a pooling equilibrium,both the first and second movers choose the same action.
D)In a pooling equilibrium,the second mover learns nothing from the first mover's action.
Q3) In a mixed-strategy Nash equilibrium,a player is willing to randomize because:
A)this confuses opponents.
B)he or she is indifferent between the actions in equilibrium.
C)the actions provide the same payoffs regardless of what the other player does.
D)he or she does not know what the other player is doing.
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Page 8
Chapter 7: Production Functions
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Sample Questions
Q1) For a fixed proportion production function,at the vertex of any of the (L-shaped)isoquants the marginal productivity of either input is:
A)constant.
B)zero.
C)negative.
D)a value that cannot be determined.
Q2) The marginal physical productivity of labor is:
A)the slope of the total output curve at the relevant point.
B)the negative of the slope of the total output curve at the relevant point.
C)the slope of the line connecting the origin with the relevant point on the total output curve.
D)the negative of the slope of the line connecting the origin with the relevant point on the total output curve.
Q3) If more and more labor is employed while keeping all other inputs constant,the marginal physical productivity of labor will eventually:
A)increase.
B)decrease.
C)remain constant.
D)cannot tell from the information provided.
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Page 9
Chapter 8: Cost Functions
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Sample Questions
Q1) The expansion path for a homothetic production function:
A)is a straight line through the origin with a slope greater than one if w > v.
B)is a straight line through the origin with a slope less than one if w < v .
C)is a straight line through the origin though its slope cannot be determined by w and v alone.
D)has a positive slope but is not necessarily a straight line.
Q2) Technical progress will:
A)shift a firm's production function and its related cost curves.
B)not affect the production function,but may shift cost curves.
C)shift a firm's production function and alter its marginal revenue curve.
D)shift a firm's production function and cause more capital (and less labor)to be hired.
Q3) The shape of a firm's long-run average cost curve is determined by:
A)the degree to which each input encounters diminishing marginal productivity.
B)the underlying nature of the firm's production function when all inputs are able to be varied.
C)how much the firm decides to produce.
D)the way in which the firm's expansion path reacts to changes in the rental rate on capital.
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Chapter 9: Profit Maximization
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Sample Questions
Q1) In an input market,economic rent is defined as the:
A)total remuneration paid to a factor of production.
B)minimum amount required to retain a factor of production in its present use.
C)total cost for a firm of renting land,equipment,and buildings.
D)extent to which payments to a factor of production exceed the minimum amount required to retain it in its present use.
Q2) If the demand curve a firm faces shifts to the right,usually:
A)it would be impossible to tell whether the marginal revenue curve shifts.
B)the marginal revenue curve would shift to the left.
C)the marginal revenue curve would shift to the right.
D)the marginal revenue curve would not shift.
Q3) If the demand faced by a firm is inelastic,selling one more unit of output will:
A)increase revenues.
B)decrease revenues.
C)keep revenues constant.
D)increase profits.
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11
Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) An increase in the price of an input to a perfectly competitive industry will:
A)increase price and reduce the number of firms.
B)increase price and increase the number of firms.
C)increase price and have an ambiguous effect on the number of firms.
D)reduce the number of firms and have an ambiguous effect on price.
Q2) In the short run,a sales tax is:
A)wholly absorbed by the producer.
B)shared between the consumer and the producer.
C)deferred until the market is able to re-establish an equilibrium price.
D)wholly absorbed by the consumer.
Q3) The excess burden of a tax is:
A)the amount by which the price of a good increases.
B)the loss of consumer and producer surplus that is not transferred to the government.
C)the amount by which a person's after-tax income decreases as a result of the new tax.
D)the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.
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Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) Suppose two goods (x and y)are being produced efficiently and that the production of x is always more labor intensive than the production of y.Production depends only on two factors (capital and labor);these may be smoothly substituted for each other.The total quantities of these inputs are fixed.An increase in the production of x and a decrease in the production of y will:
A)increase the capital-labor ratio in each firm.
B)decrease the capital-labor ratio in each firm.
C)leave the capital-labor ratio for each firm unchanged.
D)increase the capital-labor ratio in y production and decrease the capital-labor ratio in x production.
Q2) In an exchange economy A's utility is given by U<sub>A</sub> = x + y and B's by U<sub>B</sub> = min[x,2y].The initial endowment for A is x = 10,y = 8 and for B,x = 8,y =
4.To reach the contact curve,these individuals must:
A)trade 1x for 1y.
B)trade 2x for 1y.
C)trade 1x for 2y.
D)do nothing,since they are already on the contract curve.
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Chapter 12: Monopoly
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Sample Questions
Q1) A monopoly's economic profits are represented by:
A)(price minus marginal cost)times number of units sold.
B)(price minus average cost)times number of units sold.
C)(marginal revenue minus price)times number of units sold.
D)(marginal cost minus price)times number of units sold.
Q2) The supply curve for a monopoly is given by:
A)the firm's marginal cost curve above the average variable cost curve.
B)the one point on the demand curve that corresponds to the quantity for which price is equal to MC.
C)the one point on the demand curve that corresponds to the quantity for which MR equals MC.
D)the entire demand curve above the point where price is equal to average cost.
Q3) In this situation,the deadweight loss from monopoly is:
A)0.40.
B)0.16.
C)0.12.
D)0.08.
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14
Chapter 13: Imperfect Competition
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Sample Questions
Q1) A cartel-like collusive solution can be a Nash equilibrium only in price-setting games with:
A)infinite replications.
B)finite replications.
C)dominant strategies.
D)more than two players.
Q2) How does the leader's behavior in the quantity-leadership (Stackelberg)game compare to that in the analogous price-leadership game?
A)It behaves as a "puppy dog" in both.
B)It behaves as a "top dog" in the quantity leadership game but a "puppy dog" in the price leadership game.
C)It behaves as a "top dog" in the quantity leadership game but a "puppy dog" in the price leadership game
D)It behaves as a "top dog" in both.
Q3) Each firm in a cartel has an incentive to chisel because market price exceeds:
A)marginal cost.
B)average cost.
C)average variable cost.
D)average fixed cost.
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Page 15
Chapter 14: Labor Markets
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Sample Questions
Q1) A price discriminating monopsonist could increase its profits by:
A)paying the minimum wages possible.
B)hiring as little capital as possible.
C)paying lower wages to workers with inelastic supply of labor curves than to workers with elastic curves.
D)paying lower wages to workers with elastic supply of labor curves than to workers with inelastic curves.
Q2) If an individual is maximizing his or her utility,his or her marginal rate of substitution of leisure hours for consumption will be:
A)equal to one divided by his or her wage rate.
B)greater than one divided by his or her wage rate.
C)equal to his or her wage rate.
D)less than his or her wage rate.
Q3) When an individual's wage rises,the substitution effect tends to:
A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)an impossible prediction about what will happen to hours worked.
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Page 16
Chapter 15: Capital and Time
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Sample Questions
Q1) A fall in interest rates leads to:
A)an increase in the rental rate on a machine.
B)a decrease in the rental rate on a machine.
C)no change in the rental rate on a machine.
D)a fall in the marginal productivity of capital.
Q2) In Fisher's model of the determination of the rate of return,the price of a "future good" is:
A)less than the price of a current good if the interest rate is negative.
B)equal to the price of a current good if the interest rate is positive.
C)greater than the price of a current good if the interest rate is positive.
D)less than the price of a current good if the interest rate is positive.
Q3) If individuals make intertemporal choices using "hyperbolic discounting",this may create inefficient choices because individuals will:
A)not take account of their time preferences.
B)make choices that are inconsistent over time.
C)have a preference for only consuming in the future.
D)confuse nominal and real interest rates.
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Chapter 16: Asymmetric Information
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Sample Questions
Q1) When the monopoly insurer cannot observe the care taken by the insured party to avoid an accident,the most profitable contract for it:
A)offers full insurance at a higher price than the full-information policy.
B)offers full insurance at a lower price than the full-information policy.
C)offers partial insurance at a higher price than the full-information policy.
D)offers partial insurance at a lower price than the full-information policy.
Q2) What is the term for the contract that maximizes the principal's payoff subject to the constraint that the principal lacks the agent's private information?
A)First best
B)Second best
C)Third best
D)Pareto optimum
Q3) Which contracting party gains from the use of a more sophisticated contract?
A)The principal,who offers the contract.
B)The agent,who accepts the contract.
C)Both parties may lose.
D)Both parties gain equally.
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Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) Consider four possible benefits of a water resources project:
I.Provides employment to construction workers currently building houses.
II.Provides electric power to the market.
III.Provides reduced flood risk to individuals living along the river.
IV.Raises the profits of MacDonald's stands in the area which serves construction workers.
Which of these are true social benefits of the project?
A)All of them
B)I,II,and III,but not IV
C)I and III,but not II and IV
D)II and III,but not I and IV
Q2) If preferences are one-dimensional and preferences are single peaked,majority rule will result in selection of the project most favored by:
A)no one.
B)the median voter.
C)the average voter.
D)everyone.
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