Fundamentals of Microeconomics
Final Exam
Course Introduction
Fundamentals of Microeconomics introduces students to the basic principles and concepts underlying the field of microeconomics. The course explores how individuals, households, and firms make decisions regarding the allocation of scarce resources, focusing on topics such as supply and demand, market equilibrium, elasticity, consumer behavior, production and costs, and the various market structures. Through real-world examples and theoretical models, students learn how microeconomic tools can be applied to analyze and predict economic outcomes, enabling a deeper understanding of the economic forces that shape markets and influence everyday decision-making.
Recommended Textbook Principles of Microeconomics 6th Canadain Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) The "invisible hand" directs economic activity through A) advertising.
B) prices.
C) central planning.
D) government regulations.
Answer: B
Q2) Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages.As a result,residents in Massachusetts start purchasing their alcohol in surrounding states.Which of the following principles does this best illustrate?
A) People respond to incentives
B) Rational people think at the margin
C) Trade can make everyone better off
D) Markets are usually a good way to organize economic activity
Answer: A
Q3) In the short-run,society faces a tradeoff between inflation and unemployment.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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Q1) Which types of models are built with assumptions?
A) economic models, but not models in other disciplines such as physics and biology
B) economic models as well as models in other disciplines such as physics and biology
C) models that are built for teaching purposes but not for research purposes
D) bad models
Answer: B
Q2) Which of the following is not correct about most economic models?
A) They are composed of equations and diagrams.
B) They contribute very little to economists' understanding of the real world.
C) They omit many features of the real-world economy.
D) In constructing models, economists make assumptions.
Answer: B
Q3) Normative statements describe how the world is,while positive statements prescribe how the world should be.
A)True
B)False
Answer: False
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Chapter 3: Interdependence and the Gains from Trade
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Q1) Refer to Figure 3-3.If Arturo and Dina both spend all of their time producing tacos,then total production is
A) 400 tacos and 0 burritos.
B) 400 tacos and 250 burritos.
C) 800 tacos and 0 burritos.
D) 800 tacos and 500 burritos.
Answer: C
Q2) Refer to Figure 3-3.At which of the following prices would both Arturo and Dina gain from trade with each other?
A) 12 burritos for 21 tacos
B) 12 burritos for 27 tacos
C) 12 burritos for 36 tacos
D) Arturo and Dina could not both gain from trade with each other at any price. Answer: A
Q3) Refer to Table 3-6.The opportunity cost of 1 mixer for Miguel is
A) 1/2 toaster.
B) 1/2 hour of labor.
C) 2 toasters.
D) 8 hours of labor.
Answer: C
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Chapter 4: The Market Forces of Supply and Demand
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Q1) The supply curve for milk
A) shifts when the price of milk changes because the price of milk is measured on the vertical axis of the graph.
B) shifts when the price of milk changes because the quantity supplied of milk is measured on the horizontal axis of the graph.
C) does not shift when the price of milk changes because the price of milk is measured on the vertical axis of the graph.
D) does not shift when the price of milk changes because the price of milk is measured on the horizontal axis of the graph.
Q2) Refer to Figure 4-6.The shift from D to D' is called A) an increase in demand.
B) a decrease in demand.
C) a decrease in quantity demanded. D) an increase in quantity demanded.
Q3) Whenever a determinant of supply other than price changes,the supply curve shifts. A)True B)False
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Chapter 5: Elasticity and Its Application
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Q1) Refer to Table 5-5.Which of the three supply curves represents the least elastic supply?
A) supply curve A
B) supply curve B
C) supply curve C
D) There is no difference in the elasticity of the three supply curves.
Q2) Refer to Table 5-2.Using the midpoint method,if the price falls from $60 to $40,the absolute value of the price elasticity of demand is
A) 0.4.
B) 1.
C) 4.
D) 20.
Q3) Supply tends to be more elastic in the short run and more inelastic in the long run.
A)True
B)False
Q4) Elasticity measures how responsive quantity is to changes in price.
A)True
B)False
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Chapter 6: Supply, Demand, And Government Policies
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Q1) A binding minimum wage creates a surplus of labor.
A)True
B)False
Q2) Which of the following statements about the effects of rent control is correct?
A) The short-run effect of rent control is a surplus of apartments, and the long-run effect of rent control is a shortage of apartments.
B) The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.
C) In the long run, rent control leads to a shortage of apartments and an improvement in the quality of available apartments.
D) The effects of rent control are very noticeable to the public in the short run because the primary effects of rent control occur very quickly.
Q3) Refer to Figure 6-18.Sellers pay how much of the tax per unit?
A) $1.00.
B) $1.50.
C) $2.50.
D) $3.50.
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Welfare economics is the study of how
A) the allocation of resources affects economic well-being.
B) a price ceiling compares to a price floor.
C) the government helps poor people.
D) a consumer's optimal choice affects her demand curve.
Q2) Total surplus is represented by the area below the
A) demand curve and above the price.
B) price and up to the point of equilibrium.
C) demand curve and above the supply curve, up to the equilibrium quantity.
D) demand curve and above the horizontal axis, up to the equilibrium quantity.
Q3) In a market,the marginal buyer is the buyer
A) whose willingness to pay is higher than that of all other buyers and potential buyers.
B) whose willingness to pay is lower than that of all other buyers and potential buyers.
C) who is willing to buy exactly one unit of the good.
D) who would be the first to leave the market if the price were any higher.
Q4) Total surplus in a market is consumer surplus minus producer surplus.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Q1) The demand for potted plants is more elastic than the demand for wallpaper.Suppose the government levies an equivalent tax on potted plants and wallpaper.The deadweight loss would be larger in the market for
A) potted plants than in the market for wallpaper because the quantity of potted plants would fall by more than the quantity of wallpaper.
B) potted plants than in the market for wallpaper because the quantity of wallpaper would fall by more than the quantity of potted plants.
C) wallpaper than in the market for potted plants because the quantity of potted plants would fall by more than the quantity of wallpaper.
D) wallpaper than in the market for potted plants because the quantity of wallpaper would fall by more than the quantity of potted plants.
Q2) The deadweight loss from a tax of $8 per unit will be smallest in a market with
A) elastic demand and elastic supply.
B) elastic demand and inelastic supply.
C) inelastic demand and elastic supply.
D) inelastic demand and inelastic supply.
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Chapter 9: Application: International Trade
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Q1) If the demand curve and the supply curve for a good are straight lines,then the deadweight loss that results from a tariff is represented on the supply-and-demand graph by
A) the area of one triangle.
B) the area of one rectangle.
C) the combined areas of two different triangles.
D) the combined areas of two different rectangles.
Q2) Refer to Figure 9-4.Consumer surplus in Nicaragua without trade is
A) $375.
B) $2,000.
C) $2,250.
D) $8,700.
Q3) An import quota
A) is preferable to a tariff since an import quota does not create a deadweight loss. B) is a tax on imported goods.
C) reduces the welfare of domestic consumers.
D) reduces the welfare of domestic producers.
Q4) How does an import quota differ from an equivalent tariff?
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Chapter 10: Externalities
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Q1) Which of the following is an example of a positive externality?
A) air pollution
B) a person littering in a public park
C) a nice garden in front of your neighbor's house
D) the pollution of a stream
Q2) Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?
A) lower levels of nutrition, health care, and housing
B) a lower standard of living
C) slowing or reversing technological advancement
D) the elimination of all pollution
Q3) Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the external cost of antibiotic overuse is represented by
A) Q3 - Q2.
B) Q5 - Q4.
C) P3a - P3b.
D) P4a - P4b.
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Chapter 11: Public Goods and Common Resources
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Q1) Refer to Table 11-4.Suppose the cost to plant each tree is $300.How many trees should be planted to maximize the total surplus of the four homeowners?
A) 1
B) 2
C) 3
D) 4
Q2) Refer to Table 11-2.Suppose the cost to install each streetlight is $180 and the families have agreed to split the cost of installing the streetlights equally.To maximize their own surplus,how many streetlights would the Johnson's like the town to install?
A) 0 streetlights
B) 1 streetlight
C) 2 streetlights
D) 3 streetlights
Q3) A congested side street in your neighborhood is
A) excludable and rival in consumption.
B) excludable and not rival in consumption.
C) not excludable and rival in consumption.
D) not excludable and not rival in consumption.
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Chapter 12: The Design of the Tax System
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Q1) Sue earns income of $80,000 per year.Her average tax rate is 40 percent.Sue paid $4,500 in taxes on the first $30,000 she earned.What was the marginal tax rate on the rest of her income?
A) 15 percent
B) 32 percent
C) 40 percent
D) 55 percent
Q2) Suppose that in 2012 the average citizen's federal tax bill is $14,888 per person,and total federal spending is $13,997 per person.In 2012,the federal government will have
A) a per person budget surplus of $891.
B) a per person budget deficit of $891.
C) horizontal equity.
D) vertical equity.
Q3) Which of the following programs is not included in the federal income security spending?
A) Social Security
B) Temporary Assistance for Needy Families (TANF)
C) Food Stamps
D) unemployment compensation
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Chapter 13: The Costs of Production
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Q1) What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?
Q2) Refer to Table 13-2.What is the marginal product of the second worker?
A) 250 units
B) 200 units
C) 150 units
D) 50 units
Q3) A student might describe information about the costs of production as
A) exciting and fresh.
B) unimportant for understanding market structure.
C) dry and technical.
D) vibrant and enthralling.
Q4) Refer to Table 13-9.What is the marginal cost of producing the 1st poster?
A) $1.00
B) $10.00
C) $11.00
D) It can't be determined from the information given.
Q5) Refer to Table 13-16.Firm C is experiencing economies of scale.
A)True
B)False
15
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Chapter 14: Firms in Competitive Markets
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Q1) Regardless of the cost structure of firms in a competitive market,in the long run
A) firms will experience rising demand for their products.
B) the marginal firm will earn zero economic profit.
C) firms will experience a less competitive market environment.
D) exit and entry is likely to lead to a horizontal long-run supply curve.
Q2) Refer to Table 14-13.In order to maximize profits,how many units should Diana's Dress
Emporium produce?
A) 5
B) 6
C) 7
D) 8
Q3) A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.
A)True
B)False
Q4) Firms operating in perfectly competitive markets try to maximize profits.
A)True
B)False
Q5) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Q1) Price discrimination is prohibited by antitrust laws.
A)True
B)False
Q2) Refer to Table 15-9.What price should the monopoly charge to maximize profit?
A) $16
B) $20
C) $24
D) $28
Q3) Refer to Figure 15-4.Profit on a typical unit sold for a profit-maximizing monopoly would equal
A) P5-P0.
B) P4-P2.
C) P4-P1.
D) P4-P3.
Q4) Even with market power,monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices.
A)True
B)False
Q5) Give some examples of the benefits and costs of antitrust laws.
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Chapter 16: Monopolistic Competition
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Q1) Refer to Figure 16-4.Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?
A) panel a
B) panel b
C) panel c
D) All of the above are correct.
Q2) Refer to Scenario 16-3.If the marginal cost of producing this good is 4,how much total consumer surplus would consumers receive in this market?
A) 8
B) 12
C) 32
D) 64
Q3) Refer to Scenario 16-1.As a result of the new Escape Vacations hotel/resort,existing hotels,motels,and lodging facilities in Phoenix are likely to experience a
A) product-variety externality, which harms producers.
B) product-variety externality, which benefits producers.
C) business-stealing externality, which harms producers.
D) business-stealing externality, which benefits producers.
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Chapter 17: Oligopoly
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Q1) Refer to Table 17-20.If Maddie chooses to clean,then Nadia will
A) clean and Maddie's payoff will be 30.
B) not clean and Maddie's payoff will be 7.
C) clean and Maddie's payoff will be 50.
D) not clean and Maddie's payoff will be 10.
Q2) Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.If the marginal cost of production is $0 and there is no fixed cost,the combined profit of the cartel will be
A) $16
B) $24
C) $30
D) $32
Q3) Refer to Table 17-13.When this game reaches a Nash equilibrium,annual profit will grow by
A) $1.5 million for HomeMax and by $1.0 million for Lopes.
B) $3.4 million for HomeMax and by $0.4 million for Lopes.
C) $0.6 million for HomeMax and by $3.2 million for Lopes.
D) $2.5 million for HomeMax and by $2.0 million for Lopes.
Q4) Explain the practice of tying and discuss why it is controversial.
Q5) Outline the purpose of antitrust laws.What do they accomplish?
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Chapter 18: The Market For the Factors of Production
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Q1) When firms are able to increase the amount of physical capital available to workers,the
A) marginal product of labor will decrease.
B) value of the marginal product of labor will decrease.
C) value of the marginal product of labor will increase.
D) final product price will increase.
Q2) Suppose that a new invention increases the marginal productivity of labor,shifting labor demand to the right.Such an invention would be an example of A) labor-saving technology.
B) labor-augmenting technology.
C) Luddite technology.
D) supply-shifting technology.
Q3) When a firm decides to retain its earnings instead of paying dividends,the stockholders necessarily suffer.
A)True
B)False
Q4) Changes in supply and demand in the labor market will cause changes in wages.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) Which of the following is an example of a compensating differential?
A) Two workers with different levels of on-the-job training earn different salaries.
B) Two workers whose jobs entail different working conditions earn different salaries.
C) Two workers whose jobs require different levels of technical expertise earn different salaries.
D) Two workers with different levels of natural ability earn different salaries.
Q2) Which of the following statements is correct?
A) Differences in human capital may explain differences in wages between blacks and whites.
B) Racial discrimination is the strongest explanation for differences in wages between blacks and whites.
C) Gender discrimination is the strongest explanation for differences in wages between blacks and whites.
D) None of the above statements is correct.
Q3) Efficiency wages may decrease employee turnover.
A)True
B)False
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Chapter 20: Income Inequality and Poverty
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Q1) A disadvantage of the Earned Income Tax Credit (EITC)program is that it does not help alleviate poverty due to unemployment,sickness,or other inability to work.
A)True
B)False
Q2) Libertarians believe that
A) the government should choose just policies as evaluated by an impartial observer behind a "veil of ignorance."
B) the government should aim to maximize the well-being of the worst-off person in society.
C) everyone in society should have equal utility.
D) the government should not redistribute income.
Q3) Data for the United States suggests that about how many millionaires inherited their fortunes?
A) one in seven
B) one in five
C) one in three
D) one in two
Q4) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) Diana and Sarah each like jewelry and music by the Rolling Stones.If we were to graph an indifference curve with jewelry on the horizontal axis and cds by the Rolling Stones on the vertical axis,then
A) Diana and Sarah would have identical indifference curves.
B) Diana's indifference curve would be higher than Sarah's indifference curve.
C) Sarah's indifference curve would be higher than Diana's indifference curve.
D) Because we do not know the intensity of each woman's preferences, we do not have enough information to compare their indifference curves.
Q2) Refer to Figure 21-2.Which of the following statements is not correct?
A) Points W, X, and Y all cost the consumer the same amount of money.
B) Point Z is unaffordable for the consumer given his budget constraint.
C) Point V costs less than point Z.
D) Points W, X, and Y give the consumer the same level of satisfaction.
Q3) Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's total utility
A) remains constant.
B) increases.
C) decreases.
D) first increases, then decreases.
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Chapter 22: Frontiers in Microeconomics
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Q1) Refer to Table 22-5.The median voter prefers to spend
A) $2 million.
B) $2.57 million.
C) $3 million.
D) $4 million.
Q2) The temptation of imperfectly-monitored workers to shirk their responsibilities is
A) an example of the moral hazard problem.
B) an example of the adverse selection problem.
C) an example of screening.
D) an example of signaling.
Q3) Refer to Table 22-8.The table shows the preferences of four types of voters over four possible outcomes: A,B,C,D.In addition,the table shows the percentage of voters of each type.Given pairwise voting in which voters choose first between A and B,then between the winner of the first vote and C,and finally between the winner of the second vote and D,which outcome would win?
A) A
B) B
C) C
D) D
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