Fundamentals of Microeconomics Study Guide Questions
Course Introduction
Fundamentals of Microeconomics introduces students to the basic principles and concepts that govern the behavior of individual consumers, firms, and markets. The course covers topics such as supply and demand, market equilibrium, elasticity, consumer choice, production and costs, and the various market structures including perfect competition, monopoly, and oligopoly. Students will develop analytical skills to understand how prices are determined, how resources are allocated efficiently, and how market failures can occur. Through real-world examples, graphical analysis, and problem-solving exercises, this course provides a foundational understanding of microeconomic theory and its applications to everyday economic decisions.
Recommended Textbook
Fundamentals of Economics 6th Edition by William Boyes
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18 Chapters
2262 Verified Questions
2262 Flashcards
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Chapter 1: Economics and the World Around You
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Sample Questions
Q1) According to the data in Table 1.2, if trade were to occur, what is the least country Y would be willing to accept for 1 unit of sugar?
A) 1 unit of coffee
B) 1 1/2 units of coffee
C) 2/3 unit of coffee
D) 200 units of coffee
E) 1/2 unit of coffee
Answer: C
Q2) Economic freedom is
A) the right to own property.
B) not having to pay taxes.
C) exists only in some countries.
D) affects only poor people.
E) the ability to engage in voluntary trade.
Answer: E
Q3) An example of an opportunity cost is the time you forgo to eat a "free lunch."
A)True
B)False
Answer: True
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Page 3
Chapter 2: Markets and the Market Process
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Sample Questions
Q1) Assume that the market described by the demand and supply curves in Figure 2.1 is originally in equilibrium. What is the most likely consequence of a government-imposed price ceiling (maximum price that producers are allowed to charge) of $10 per unit?
A) Supply will increase.
B) Demand will increase.
C) Quantity supplied will decrease.
D) There will be a surplus of the good.
E) There will be no consequence at all.
Answer: C
Q2) Why is the market system not universally relied on to allocate goods and services?
A) Government wants to impose its preferences.
B) People do not like the outcome.
C) The market simply cannot function.
D) The market system is not always the most efficient allocation mechanism.
E) All of these.
Answer: E
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4
Chapter 3: Applications of Demand and Supply
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Sample Questions
Q1) "Efficiency" means you get the same amount at a higher cost.
A)True
B)False
Answer: False
Q2) Refer to Table 3.1. If the government imposes a price of $2,
A) the price will be above equilibrium.
B) the price will fall to $1 because producers will be forced to incur losses.
C) demand will increase.
D) a surplus equal to 20 units will result.
E) a shortage equal to 20 units will result.
Answer: E
Q3) In Figure 3.4, the reason for the wage differential could be the fact that
A) market A is the market for a risky occupation.
B) market B consists of unskilled labor.
C) market A consists of workers with more human capital.
D) market B consists of workers with less human capital.
E) all of these are true.
Answer: E
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5
Chapter 4: The Firm and the Consumer
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Sample Questions
Q1) A product has an inelastic demand if
A) price falls and total revenue (or total consumer expenditures) rises.
B) price rises and total revenue (or total consumer expenditures) falls.
C) price rises and total revenue (or total consumer expenditures) rises.
D) its slope is less than 1.
E) price changes and there is no change in total revenue (or total consumer expenditures).
Q2) Firms practice price discrimination in order to increase revenue.
A)True
B)False
Q3) Marginal revenue is
A) the price at which a product is sold multiplied by the cost of producing the product.
B) the price at which a product is sold divided by the number of units of the product sold.
C) the change in total revenue divided by the change in quantity sold.
D) the change in quantity sold divided by the change in total revenue.
E) the additional cost to produce one more unit of output.
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Chapter 5: Costs and Profit Maximization
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Sample Questions
Q1) Average total cost is calculated by dividing
A) the change in total cost by the change in the quantity of output.
B) total output by the number of people employed.
C) the change in total output by the change in the number of people employed.
D) total cost by total output.
E) total output by total cost.
Q2) In Table 5.2, the average fixed cost of the first unit of output is ____, while the average fixed cost of producing 8 units of output is ____.
A) $30; $40
B) $40; $5
C) $40; $40
D) $40; $280
E) $40; $320
Q3) Which of the following may be fixed in the short run?
A) Plant capacity
B) Machinery
C) The number of firms in an industry
D) Essential raw materials
E) Any one or more of the resources may be fixed in the short run.
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Page 7
Chapter 6: Competition
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Sample Questions
Q1) The policy used by Mexican government officials to force mergers to create larger companies and appoint their friends to head them is called
A) capitalism.
B) semicapitalism.
C) quasi capitalism.
D) crony capitalism.
E) None of these
Q2) Product differentiation
A) separates monopolistically competitive firms from perfectly competitive firms.
B) means the firm has an elastic demand curve.
C) allows the firm to raise its price without losing all of its customers.
D) is often accomplished through advertising or trivial product changes.
E) All of these choices
Q3) To the consumer, price is the only criteria that matters in the market for a commodity.
A)True
B)False
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Chapter 7: Business, Society, and the Government
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Sample Questions
Q1) In Figure 7.2, consumer surplus in the case where there is just one firm is the area
A) AP<sub>2</sub>C.
B) BCF.
C) 0FQ<sub>1</sub>.
D) ACFP3.
E) P<sub>1</sub>P<sub>2</sub>CE.
Q2) All of the following are examples of a first-come, first-served system of allocation except:
A) medical care
B) classes at school
C) access to highways
D) tickets to concerts
E) All of these are examples allocated by a first-come, first-served system.
Q3) Suppose that a bee farmer (to make honey) is located next to an apple orchard. According to Ronald Coase, since the bees pollinate the apple flowers, the apple farmer should pay the bee farmer to internalize the externality.
A)True
B)False
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Chapter 8: Government Intervention Versus Free Markets
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Q1) The resulting spill from the explosion of the British Petroleum (BP) oil well in the Gulf of Mexico in April 2010 was due, in part, to government intervention in the market that forced BP to drill 50 miles offshore and 1 mile below the ocean's surface.
A)True
B)False
Q2) Health care spending does not vary among groups in the U.S. population.
A)True
B)False
Q3) The market can deal with an externality over time if A) the external costs and benefits are not internalized.
B) private property rights are well defined.
C) government intervention corrects the external costs and benefits.
D) public interest group(s) force the externality to be corrected.
E) the socially optimal amount is produced.
Q4) The market for natural resources can allocate resources to their highest valued uses as long as private property rights are well defined and enforced.
A)True
B)False
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Page 10
Chapter 9: An Overview of the National and International Economies
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Sample Questions
Q1) Households supply their resources in the factor markets in exchange for money, which is subsequently spent in the product markets.
A)True
B)False
Q2) Which of the following is not a service that the government usually provides?
A) National defense
B) Education
C) Postal services
D) Police and fire protection
E) Religious services
Q3) Households whose members are between the ages of 45 and 54 have the largest median income in the United States.
A)True
B)False
Q4) A trade deficit occurs when total exports are less than total imports.
A)True
B)False
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Chapter 10: Macroeconomic Measures
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Sample Questions
Q1) Which of the following is included in figuring GDP as income?
A) Consumption
B) Profits
C) Investment
D) Government spending
E) Imports
Q2) GDP is both a measure of total expenditures on final goods and services and a measure of the total income earned in the production of those goods and services.
A)True
B)False
Q3) What is an indirect business tax?
A) A tax that is collected by businesses for a government agency
B) A foreign tax that affects the consumer indirectly
C) A foreign tax collected by the local government
D) A local tax intended to tax different goods than the ones that end up being taxed
E) A tax that affects only those businesses that deal with indirect goods
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Chapter 11: Unemployment, Inflation, and Business Cycles
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Sample Questions
Q1) Economists call a severe prolonged economic recession a A) slump.
B) depression.
C) stagnation.
D) trend.
E) contraction.
Q2) Suppose Jeremy borrows $100 from Mike, at an interest rate of 7%. If the inflation rate over the year turns out to be 5%, which of the following is true?
A) The nominal rate of interest is 2%
B) The real rate of interest is 7%
C) The real rate of interest is 12%
D) The nominal rate of interest is 12%
E) The real rate of interest is 2%.
Q3) The three types of indicators classified by the Department of Commerce are
A) leading, contractionist, and passed indicators.
B) leading, coincident, and lagging indicators.
C) primary, contractionist, and passed indicators.
D) optimal, contractionist, and passed indicators.
E) optimal, coincident, and lagging indicators.
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Page 13
Chapter 12: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) Other things equal, an increase in aggregate demand tends to be associated with A) cost-push inflation.
B) an economic contraction.
C) a lower level of equilibrium real GDP.
D) demand-pull inflation.
E) an increase in the quality of goods and services produced.
Q2) Refer to Figure 12.4. The combination of rising prices and falling output is known as stagflation. This phenomenon is represented by which of the following shifts?
A) LRAS<sub>2 </sub>to LRAS<sub>1</sub>
B) AD<sub>1 </sub>to AD<sub>2</sub>
C) AD<sub>2 </sub>to AD<sub>1</sub>
D) LRAS<sub>1 </sub>to LRAS<sub>2</sub>
E) The combination of LRAS<sub>1 </sub>to LRAS<sub>2 </sub>and AD<sub>1 </sub>to AD<sub>2</sub>
Q3) New production technology discourages investment spending because no firm wants to invest in technologies that will quickly become obsolete.
A)True
B)False
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Value-added taxes and excise taxes constitute a direct tax.
A)True
B)False
Q2) Economists define two components of fiscal policy:
A) obligatory fiscal policy and automatic fiscal actions.
B) discretionary fiscal policy and reflexive fiscal policy.
C) discretionary fiscal policy and automatic stabilizers.
D) automatic stabilizers and reflexive fiscal policy.
E) obligatory and reflexive fiscal policies.
Q3) Under a progressive tax system,
A) the average tax rate increases with increases in real GDP.
B) the average tax rate remains constant with changes in real GDP.
C) the average tax rate falls with increases in real GDP.
D) government tax receipts increase when the economy is in a recession.
E) government tax receipts decrease when the economy is expanding.
Q4) Governments in developing countries typically play a larger role in investment spending in their economies than do the governments of developed countries.
A)True
B)False
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Chapter 14: Money and Banking
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Sample Questions
Q1) Bank runs in the United States are unlikely because
A) the Federal Deposit Insurance Corporation insures commercial bank deposits.
B) depository institutions operate on a partial-reserve basis.
C) bank failures have been nonexistent since 1932.
D) today's financial institutions cannot lose money.
E) the banking deregulation act of 1980 has prohibited bank failures by law.
Q2) An asset that can easily be exchanged for goods and services is called a(n)
A) financial asset.
B) liquid asset.
C) illegitimate asset.
D) barterlike asset.
E) service.
Q3) The use of money as a unit of account
A) discourages specialization and division of labor.
B) inhibits the exchange of goods and services.
C) makes it difficult to compare the relative values of goods and services.
D) lowers information costs relative to barter.
E) relies on the existence of a double coincidence of wants.
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Sterilization occurs when the Fed
A) offsets the effects of international currency flows with a protectionist trade policy.
B) directs a permanent increase of the money supply.
C) offsets the effects of a foreign exchange market intervention with domestic open market operations.
D) implements a fixed exchange rate system.
E) changes the domestic prime lending rate in response to foreign exchange market intervention.
Q2) The use of domestic open market operations to offset the effects of a foreign exchange market intervention on the domestic money supply is known as A) normalization.
B) actualization of objectives.
C) sterilization.
D) volatilization.
E) accommodation.
Q3) The U.S. Constitution provided for the creation of the Federal Reserve.
A)True
B)False
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Chapter 16: Macroeconomic Policy, Business Cycles, and Growth
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Sample Questions
Q1) If aggregate demand rises unexpectedly, inventories fall, inflation is higher than expected, and unemployment rises.
A)True
B)False
Q2) Which of the following is a barrier to economic growth in developing countries?
A) A shortage of labor
B) A declining population
C) Lack of investment in research and development
D) Lack of natural resources
E) A declining labor force
Q3) If the growth rate of resources is zero and real output is growing at 4 percent, then total factor productivity has risen by 4 percent.
A)True
B)False
Q4) Unexpected inventory changes, fixed wage contracts, and unexpected changes in the nominal wage rate are associated with a movement along the short-run Phillips curve.
A)True
B)False
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Chapter 17: Issues in International Trade and Finance
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Sample Questions
Q1) Exchange rate arrangements in existence today include all of the following except:
A) fixed exchange rates
B) floating exchange rates
C) crawling pegs
D) no separate legal tender
E) None - all of these arrangements are used today.
Q2) Developing countries would be expected to have a comparative advantage in industries requiring a relatively large amount of unskilled labor.
A)True
B)False
Q3) According to the data in Table 17.1, Germany has a comparative advantage in producing
A) machinery.
B) food.
C) both machinery and food.
D) neither machinery nor food.
E) Cannot be determined from the information provided.
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Chapter 18: Globalization
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Sample Questions
Q1) Stories about sweat shops in developing countries producing goods for consumers in industrialized countries contribute to the criticism that globalization encourages harmful labor practices.
A)True
B)False
Q2) Most of the countries that are closed to global trade are
A) social democracies.
B) among the poorest countries in the world.
C) oil-rich countries.
D) among the largest economies and therefore do not need to trade with other countries.
E) geographically isolated from the rest of the world.
Q3) Countries not engaged in globalization tend to be mired in low-growth poverty.
A)True
B)False
Q4) During financial crises, currencies tend to appreciate.
A)True
B)False
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