Foundations of Microeconomics
Midterm Exam
Course Introduction
Foundations of Microeconomics introduces students to the basic principles of economics, focusing on individual and firm decision-making in different types of markets. The course covers fundamental concepts such as supply and demand, elasticity, consumer and producer behavior, market structures, and the role of government in market outcomes. Through real-world examples and analytical tools, students will develop a strong understanding of how economic agents interact, the efficiency of market outcomes, and the impact of policy interventions on resource allocation and social welfare.
Recommended Textbook
Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) What has been one effect of a government-imposed seat belt law
A)fewer pedestrian deaths
B)safer driving
C)an increase in the number of accidents
D)everyone now wears seat belts
Answer: C
Q2) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
Q3) What is market power
A)the power of a single person or group to influence market prices
B)the ability of a person or group of people to successfully market new products
C)the power of the government to regulate a market
D)the relative importance of a market to the overall economy
Answer: A
Q4) Productivity is the primary determinant of a country's living standards.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What is NOT a common characteristic of economic models
A)They are often built using the tools of mathematics.
B)They are useful to economists, but not to policymakers.
C)They include only the important features of an economy.
D)They are built using assumptions.
Answer: B
Q2) What do economists from the Department of Finance provide
A)the annual Economic Report of the Prime Minister
B)the Senate with the annual budget
C)enforcement of the competition laws
D)advice on tax policy to the Prime Minister
Answer: D
Q3) Which of the following is NOT a positive statement
A)Lower oil prices will result in higher unemployment.
B)Equity is more important than efficiency.
C)Trade restrictions lower our standard of living.
D)If a nation wants to avoid inflation, it should not print too much money.
Answer: B
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4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Suppose that a worker in Radioland can produce either 4 radios or 1 television per year,and a worker in Teeveeland can produce either 2 radios or 4 televisions per year.Each nation has 100 workers.Also suppose that each country completely specializes in producing the good for which it has a comparative advantage.If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year,what is each country's maximum consumption of new radios and televisions per year
A)300 televisions and 100 radios in Radioland, and 300 radios and 100 televisions in Teeveeland
B)300 televisions and 100 radios in Teeveeland, and 300 radios and 100 televisions in Radioland
C)100 televisions and 200 radios in Radioland, and 100 radios and 200 televisions in Teeveeland
D)400 televisions and 100 radios in Teeveeland, and 400 radios and 100 televisions in Radioland Answer: B
Q2) Some countries win in international trade,while other countries lose.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) What does the market supply curve show
A)the total quantity supplied at any price
B)the average quantity supplied at any price
C)a ratio between price and quantity supplied for the market
D)the price sellers will receive from consumers at given quantities
Q2) Market demand is given as Q<sub>D </sub>= 220 - 4P.Market supply is given as Q<sub>S </sub>= 2P + 40.If price increases from $50 to $53,what is the price elasticity of demand
A)0.1
B)1.0
C)12.0
D)14.7
Q3) What happens when there is a shortage in a market
A)There is downward pressure on price.
B)There is upward pressure on price.
C)The market is operating above the equilibrium level.
D)The price must be above equilibrium.
Q4) A local cable TV company might be a monopolist.
A)True
B)False
Page 6
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Chapter 5: Elasticity and Its Application
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Sample Questions
Q1) Moving up a linear demand curve,what happens to total revenue
A)It increases, then decreases.
B)It decreases, then increases.
C)It increases.
D)It decreases.
Q2) When the Shaffers had a monthly income of $8,000,they would usually eat out eight times a month.Now that the couple makes $8,500 a month,they eat out ten times a month.Compute the couple's income elasticity of demand using the midpoint method.Explain your answer.(Is a restaurant meal a normal or inferior good to the couple)?
Q3) What happens in the case of perfectly inelastic demand
A)Quantity demanded stays the same regardless of price changes.
B)Huge changes in quantity demanded result from very small changes in the price.
C)The change in quantity demanded exactly equals the change in price.
D)The change in quantity demanded will be twice the change in price.
Q4) If two goods are substitutes,what will their cross-price elasticity of demand be
A)positive
B)negative
C)zero
D)one
Page 7
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) What effect will a tax of $0.10 per bar on sellers of Caramelt candy bars have
A)The supply curve of Caramelt candy bars bar will shift down by $0.10.
B)The supply curve of Caramelt candy bars bar will shift up by $0.10.
C)The demand curve of Caramelt candy bars bar will shift down by $0.10.
D)The demand curve of Caramelt candy bars bar will shift up by $0.10.
Q2) Why are apartment owners less responsive to tenants' concerns about housing quality under rent control
A)With shortages and waiting lists, apartment owners have an incentive to maintain and improve their property.
B)Apartment owners know they can never please their tenants.
C)The law no longer requires apartment owners to maintain their buildings.
D)Apartment owners can convert their buildings into condos.
Q3) Market demand is given as Q<sub>D </sub>= 150 - 3P.Market supply is given as Q<sub>S </sub>= 2P + 50.Which legally imposed price would constitute a binding price ceiling
A)$10
B)$20
C)$23
D)$26
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Page 8
Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) What is the sum of out-of-pocket expenses plus the value of the seller's own resources used in production
A)the seller's total revenue
B)the seller's consumer surplus
C)producer surplus
D)the cost of production
Q2) Refer to Figure 7-6.Assume demand increases and as a result,equilibrium price increases to $22 and equilibrium quantity increases to 110.What would be the increase in producer surplus due to new producers entering the market
A)$90
B)$210
C)$360
D)$480
Q3) What does producer surplus measure
A)the well-being of society as a whole
B)the well-being of sellers
C)the well-being of buyers and sellers
D)the well-being of buyers
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Refer to Figure 8-4.Assume the tax was levied on the producer.Which area represents the reduction in consumer surplus
A)A
B)B + C
C)C + E
D)D + E
Q2) During Ronald Reagan's first term in office,income tax rates were reduced significantly.What was the result
A)Income tax collections declined.
B)Income tax revenue increased.
C)The Laffer curve was demonstrated to be essentially correct.
D)The government experienced budget surpluses for four consecutive years.
Q3) Refer to Figure 8-6.What would the total surplus with the tax levied on the seller be
A)$210
B)$220
C)$230
D)$240
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Why is trade beneficial
A)It creates jobs for foreigners.
B)It creates jobs for shippers.
C)It allows each nation to apply economic pressure on other nations.
D)It allows each nation to specialize in doing what it does best.
Q2) Refer to Figure 9-6.If this country allows free trade in wagons,how much will producers gain or lose
A)gain by $45
B)gain by $210
C)lose by $210
D)lose by $165
Q3) Refer to Figure 9-6.If this country allows free trade in wagons,how much will consumers gain or lose
A)lose by $75
B)lose by $240
C)gain by $120
D)gain by $240
Q4) Trade decisions are based on the concept of absolute advantage.
A)True
B)False
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Chapter 10: Externalities
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Sample Questions
Q1) A fertilizer plant emits a very foul odour during the production process.If the government forces the plant to internalize this negative externality,what would result
A)The supply curve for fertilizer would shift to the right (down).
B)The supply curve for fertilizer would shift to the left (up).
C)The demand curve for fertilizer would shift to the right (down).
D)The demand curve for fertilizer would shift to the left (up).
Q2) A negative externality causes a private market to produce which of the following quantities
A)less than is socially desirable
B)more than is socially desirable
C)more than market equilibrium
D)less than market equilibrium
Q3) Refer to Figure 10-2.If this market is currently producing at Q ,how could total economic well-being be increased
A)if output stayed at Q
B)if output increased to Q
C)if output increased to Q
D)if output increased to Q
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Why is national defence provided by the government
A)It is impossible for private markets to produce public goods.
B)Products provided by the government can be produced more efficiently.
C)Free riders make it difficult for private markets to supply the socially optimal quantity.
D)If the good were produced in private markets, most likely too much of the good would be produced.
Q2) What,in essence,is a toll on congested roads
A)an interprovincial highway tax
B)a Department of Motor Vehicles tax
C)a gasoline tax
D)a corrective tax
Q3) When something of value has no price attached to it,such as a public good,what will likely happen
A)Externalities will be present.
B)The good will be completely used up.
C)Only those who are better off have to pay.
D)Private companies will eventually produce the product and the good will no longer be free.
Q4) Can we use cost and benefit analysis to evaluate human life and how
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) In the absence of taxes,Janet would prefer to purchase a large sport utility vehicle (SUV).However,the government has recently decided to place a $10,000 nuisance tax on SUVs.Which statement best reflects the effect of this tax if Janet decides to purchase a small economy car as a result of the tax
A)Other people who choose to purchase SUVs will incur the cost of the deadweight loss of the tax.
B)There are no deadweight losses as long as some people still choose to purchase SUVs.
C)All deadweight losses are mitigated if there is a net decrease in air pollution.
D)Janet is worse off, and her loss of welfare is part of the deadweight loss of the tax.
Q2) With a lump-sum tax,how is the average tax rate evaluated
A)The average tax rate is always equal to zero.
B)The average tax rate is always less than the marginal tax rate.
C)The average tax rate falls as income rises.
D)The average tax rate rises as income rises.
Q3) Evaluate the statement: Tax loopholes increase the efficiency of tax systems.
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Average total cost reveals how much total cost will change as the firm alters its level of production.
A)True B)False
Q2) Assume a certain firm regards the number of workers it employs as variable.When is this variable assumption often realistic
A)If the size of its factory is fixed, then it refers to the short run.
B)If the size of its factory is fixed, then it refers to the long run.
C)If the size of its factory is not fixed, then it refers to the short run.
D)If the size of its factory is not fixed, then it refers to the short run and the long run.
Q3) The shape of the total-cost curve is unrelated to the shape of the production function.
A)True B)False
Q4) According to the mathematical laws that govern the relationship between average total cost and marginal cost, where must these two curves intersect?
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15
Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) News reports from Western Canada occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets.Assuming that this is rational behaviour by profit-maximizing "firms," explain what economic factors may influence such behaviour.
Q2) Refer to Figure 14-1.When price is equal to P ,at what level of output will the profit-maximizing firm produce
A)Q
B)Q
C)Q
D)Q
Q3) In a market with 1000 identical firms,what is the short-run market supply
A)the marginal-cost curve (above average variable cost)
B)the average-total-cost curve (above average variable cost)
C)the sum of the prices charged by each of the 1000 individual firms
D)the sum of the quantities supplied by each of the 1000 individual firms
Q4) The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.
A)True
B)False
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Chapter 15: Monopoly
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Sample Questions
Q1) For a profit-maximizing monopolist,when should output be increased to enhance economic well-being
A)as long as average revenue exceeds marginal cost
B)as long as average revenue exceeds average total cost
C)as long as marginal revenue exceeds marginal cost
D)as long as marginal revenue exceeds average total cost
Q2) For which item is it sometimes meaningful for a monopoly to consider negative values
A)marginal revenue
B)average revenue
C)marginal cost
D)average total cost
Q3) What may antitrust laws do
A)enhance the ability of firms to capture profits from a concentration of market power
B)enhance the ability of firms to reduce economic losses
C)restrict the ability of firms to operate at the socially efficient level of production
D)restrict the ability of firms to merge
Q4) Why does a monopoly firm not have a supply curve?
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Chapter 16: Monopolistic Competition
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Sample Questions
Q1) How is the inefficiency related to the monopolistically competitive industry eliminated?
Q2) When a market is monopolistically competitive,what is the typical firm in the market likely to experience in the short and long run
A)positive profit in the short run and in the long run
B)positive or negative profit in the short run and a zero profit in the long run
C)zero profit in the short run and a positive or negative profit in the long run
D)zero profit in the short run and in the long run
Q3) Firm A is a perfectly competitive firm.Firm B is a monopolistically competitive firm.Both firms are currently maximizing their respective profits.Which of the statement best explains the differences between the two firms' sales strategies
A)Firm A will set the price for its products and Firm B will not set the price.
B)Firm A will not set the price for its products and Firm B will set the price.
C)Firm B would be eager to make an additional sale, but Firm A would not care whether it made an additional sale or not.
D)Firm A would be eager to make an additional sale, but Firm B would not care whether it made an additional sale or not.
Q4) List five goods that are sold in a monopolistically competitive market.
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Page 18
Chapter 17: Oligopoly
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Sample Questions
Q1) Duopolists and oligopolists face different pricing dilemmas.
A)True
B)False
Q2) Refer to Table 17-2.Assume that there are two wireless Internet companies operating in this market.If they are able to "collude" on price and quantity of subscriptions to sell,what price (P) will they charge,and what quantity (Q) of subscriptions will they collectively sell
A)P = $60, Q = 8000
B)P = $90, Q = 6000
C)P = $120, Q = 4000
D)P = $150, Q = 2000
Q3) An oligopoly is a market with only a few sellers,each offering a similar or identical product.
A)True
B)False
Q4) The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.
A)True
B)False
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) In 2014,the dangerous Ebola virus entered Canada when a Canadian resident returned to Canada after contracting the virus while visiting Liberia.Suppose this virus had not been contained,and had spread to the general population.Describe the resulting effect on labour productivity.(Assume that the virus is lethal in half of the people who are exposed to the virus.)
Q2) What term refers to the accumulation of goods produced in the past that are being used in the present to produce new goods and services
A)inventories
B)products
C)factors of production
D)capital
Q3) Refer to Table 18-1.What is the name of the property exemplified by the fact that the marginal product changes as the number of workers increases
A)diminishing marginal product
B)diminishing marginal utility
C)supply and demand
D)profit maximization
Q4) Why may the labour supply curve not be upward sloping?
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) How does the theory of efficiency wages explain above-equilibrium wages
A)Employers are forced to pay higher wages in efficient markets.
B)Employers give their workers a higher wage in the hope that it will lead to increased productivity.
C)Workers get a raise in wage when they prove they are increasing their productivity.
D)Workers demand higher wages to compensate for poor fringe benefits.
Q2) Which scenario would serve to decrease the demand for unskilled labour in Canada
A)increased productivity gains among the unskilled labourers
B)increased demand for goods produced by unskilled labour
C)increased international trade with countries where unskilled labour is more plentiful
D)increased supply of migrant workers
Q3) Why is a plumber unlikely to be as rich as a movie star
A)Compensating differential creates a higher wage in the movie business.
B)There haven't been any decent technological advances in the plumbing industry.
C)Productivity levels are low in the plumbing industry due to low worker morale.
D)A plumber can provide his services to only a limited number of customers.
Q4) List the factors that can contribute to gender wage gaps in the competitive market.Could the gap disappear over time
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Page 21
Chapter 20: Income Inequality and Poverty
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Q1) According to utilitarians,what is the ultimate objective of private and public actions
A)to enhance the income of the rich
B)to ensure an egalitarian distribution of income
C)to maximize the sum of individual satisfaction toward their life
D)to provide for the betterment of the poor
Q2) Ms.Shanahan currently earns $100,000 a year,while her junior partner,Mr.Koslo,earns
$55,000 a year.From the perspective of a utilitarian,if both of their incomes are subject to diminishing marginal utility,what will taking a dollar from Ms.Shanahan and giving it to Mr.Koslo do
A)Ms.Shanahan's utility falls by less than Mr.Koslo's utility rises.
B)Ms.Shanahan's utility falls by more than Mr.Koslo's utility rises.
C)Mr.Koslo's utility falls by less than Ms.Shanahan's utility rises.
D)Mr.Koslo's utility falls by more than Ms.Shanahan's utility rises.
Q3) When would libertarianism justify government intervention in the redistribution of income
A)if an egalitarian distribution of income is inconsistent with market outcomes
B)if the income distribution is altered by illegal means (e.g., theft)
C)if a social planner is needed to smooth out the transitory income stream
D)if workers lose their jobs as a result of structural changes in the economy
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Page 22
Chapter 21: The Theory of Consumer Choice
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Q1) Refer to Figure 21-2.Which of the graphs in the figure reflects a decrease in the price of good X only
A)graph (a)
B)graph (b)
C)graph (c)
D)graph (d)
Q2) What determines the slope of the budget constraint
A)the relative price of commodities represented on the axes
B)the level of income of the consumer
C)the endowment of productive resources
D)the preferences of a consumer
Q3) Assume that a college student spends all of her income on macaroni and hamburger.The price of a box of macaroni is $1.50 and a pound of hamburger costs $3.50.If she has $42 of income,what could she choose to consume
A)10 boxes of macaroni and 9 pounds of hamburger
B)12 boxes of macaroni and 7 pounds of hamburger
C)14 boxes of macaroni and 6 pounds of hamburger
D)11 boxes of macaroni and 8 pounds of hamburger
Q4) List and briefly explain each of the four properties of indifference curves.
Q5) Use graphs to demonstrate how an individual labour supply curve is derived.
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Chapter 22: Frontiers of Microeconomics
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Q1) The species of organism whose members always rationally weigh all the relevant costs and benefits in choosing the best course of action is called what
A)Homo economicus
B)Homo sapiens
C)Homo rationalicus
D)Homo microcosmicus
Q2) Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.
A)True
B)False
Q3) Conventional economic theory suggests that in the ultimatum game,the player proposing a split of $100 will propose that she gets $99 and that the other player gets $1.By the same reasoning,if the amount to be split is $200,what would the player proposing the split propose
A)that she gets $100 and that the other player gets $100
B)that she gets $198 and that the other player gets $2
C)that she gets $199 and that the other player gets $1
D)that she gets $200 and that the other player gets $0
Q4) Explain the Condorcet paradox.To which type of voting system does it apply?
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