Honors Microeconomics Exam Review
Course Introduction
Honors Microeconomics provides an advanced exploration of the principles that govern individual choices and market behavior. This course delves into topics such as consumer and producer theory, market structures, welfare economics, and the impact of government interventions, emphasizing both theoretical rigor and real-world applications. Through the use of mathematical models, analytical reasoning, and case studies, students will develop a deeper understanding of how economic agents interact, how resources are allocated, and how various externalities and market imperfections influence outcomes. The course encourages critical thinking, problem-solving, and the application of microeconomic concepts to contemporary economic issues and policy debates.
Recommended Textbook
Microeconomics 2nd Edition by Daron Acemoglu
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Chapter 1: The Principles and Practice of Economics
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Q1) Refer to the scenario above.Maria should choose to ________.
A) drive, as it will save her $120
B) travel by train, because it is quicker
C) drive, as it will give her a real saving of $150
D) travel by train, as it will save her $30 in travel time
Answer: A
Q2) Which of the following statements is true?
A) Rational economic agents maximize more than just monetary income.
B) An individual does not require information to make optimal decisions.
C) The principle of optimization is only accurate when it comes to making monetary decisions.
D) It is not necessary to consider the risks of alternatives while making an optimal decision.
Answer: A
Q3) Which of the following is an example of a positive economic statement?
A) The government should ideally work as a welfare state.
B) An increase in income causes an increase in savings.
C) Economics is the most useful social science.
D) Eliminating poverty is more important than reducing inflation.
Answer: B
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Chapter 2: Economic Methods and Economic Questions
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Q1) Refer to the table above.The average monthly wage of the five workers is
A) $600
B) $450
C) $440
D) $0
Answer: C
Q2) An independent variable ________.
A) cannot be measured
B) cannot be represented on a bar chart
C) is manipulated by the experimenter in an experiment
D) is determined by the other variables in an experiment
Answer: C
Q3) An experiment refers to ________.
A) a simplified representation of some real-life phenomenon
B) the process of collecting, measuring, and organizing data
C) validating the claims of a model using statistics and facts
D) a controlled method of investigating causal relationships among variables
Answer: D
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Chapter 3: Optimization: Doing the Best You Can
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Q1) Which of the following statements is true?
A) Marginal analysis is a key tool used while optimizing using total value.
B) Before and after comparisons can be used in both optimization using total value and optimization using marginal analysis.
C) Marginal analysis is the comparison of economic outcomes before and after some economic variable is changed.
D) Before and after comparisons involve calculating the incremental cost of moving from one alternative to the next best alternative.
Answer: B
Q2) To carry out an optimization analysis,________.
A) different types of costs are measured in different units
B) only direct costs incurred in a project are to be estimated
C) only indirect costs incurred in a project are to be estimated
D) all costs are required to be converted to the same unit of measurement
Answer: D
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Chapter 4: Demand, supply, and Equilibrium
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Q1) In competitive markets,firms ________.
A) coordinate pricing decisions with other firms
B) take the market price as given
C) have the government set maximum and minimum prices
D) set the market price
Q2) The willingness to pay for a commodity ________.
A) decreases as consumption of the commodity increases
B) increases as consumption of the commodity increases
C) is always less than the market price of the commodity
D) is always greater than the market price of the commodity
Q3) In a market for apples,a consumer purchases 30 pounds when the price of apples is $1 per pound and the consumer's income is $5,000 per month.When the price of apples increases to $2 per pound,without any change in the consumer's income,she decides to purchase only 15 pounds of apples.Suppose,after a given period of time,the consumer's income falls to $3,000 per month.Her consumption of apples also decreases to 10 pounds.Using a graph,illustrate the difference between the change in quantity demanded and the change in demand for apples.
Q4) How would the following events affect the market demand for laser printers?
a)A recession in the economy leading to a fall in income levels
b)A fivefold increase in the price of printing paper
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Chapter 5: Consumers and Incentives
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Q1) Which of the following correctly describes incentives?
A) Incentives refer to the maximum price that a buyer is willing to pay for a good.
B) Incentives are rewards or penalties that motivate people to behave in a particular way.
C) Incentives are prices that are fixed by the government and not by market forces.
D) Incentives refer to the minimum price at which a seller is willing to sell a product.
Q2) The demand for a good is elastic.This means that if there is a 10% change in price of this good,________.
A) the quantity demanded will change more than 10%
B) the quantity demanded will change less than 10%
C) the quantity demanded will change 10% as well
D) the quantity demanded will not change at all
Q3) Joey's budget constraint is given by $ ________ PR + $ ________ RS = $________.
Q4) Using an example of a bundle of two goods,graphically illustrate the substitution effect and the income effect if the price of any one good falls.
Q5) Define a budget set.Is it the same as a budget constraint?
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Chapter 6: Sellers and Incentives
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Q1) Refer to the table above.If the factory plans to hire a seventh worker whose marginal product is 15 pairs,the total output after he is hired will be ________.
A) 15 pairs
B) 105 pairs
C) 280 pairs
D) 295 pairs
Q2) A firm uses workers,land,and machinery in its production process.Which of the following statements is true in the long run?
A) The only way the firm can change its output level is by changing the number of workers.
B) The only way the firm can change its output level is by changing the amount of land it owns.
C) The only way the firm can change its output level is by changing the amount of machinery it owns.
D) The firm can change its output level by changing any or all of its three inputs.
Q3) Define the terms "production" and "production function." Differentiate between the short run and the long run based on the usage of inputs by a firm.
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Chapter 7: Perfect Competition and the Invisible Hand
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Q1) Which of the following statements is true?
A) The total cost of production in a perfectly competitive market can be minimized only when the marginal costs across firms in the market are different.
B) When a competitive market is allowed to operate efficiently, firms end up producing goods using the least amount of scarce resources.
C) Under a perfectly competitive framework, a ruling authority is essentially required to dictate goals for the betterment of society.
D) A firm interested in maximizing profits in a perfectly competitive market will produce output at a level where marginal revenue is equal to the price and greater than the marginal cost.
Q2) Refer to the tables above.What is the range of equilibrium prices? What is the equilibrium quantity?
A) $25 and $30; 4 units
B) $25 and $45; 5 units
C) $30 and $35; 5 units
D) $35 and $45; 6 units
Q3) Define a Pareto efficient outcome.Does it ensure equity? Explain with an example.
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Chapter 8: Trade
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Q1) Refer to the figure above.At a world price of $6,in which scenario(s)does Barylia see its domestic quantity demanded decrease?
A) (1)
B) (2)
C) (1) and (2)
D) (4)
Q2) Refer to the scenario above.The U.S.economy will ________ because of this tariff policy.
A) lose $20
B) gain $20
C) lose $80
D) gain $80
Q3) The curvature of an economy's production possibilities curve represents ________.
A) the increasing marginal cost of producing both goods
B) the increasing opportunity cost of producing each good
C) diminishing marginal returns to inputs
D) increasing terms of trade between both goods
Q4) What is meant by the term "comparative advantage"? How is it different from absolute advantage?
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Chapter 9: Externalities and Public Goods
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Q1) Why are public goods non-rival in consumption? Explain with a real-world example.
Q2) You bought a subscription for an online magazine and shared your log-in details with a friend.Your friend is a ________ in this case.
A) free-rider
B) rent seeker
C) speculator
D) hedger
Q3) Externalities essentially create ________.
A) non-excludability in consumption
B) non-rivalry in consumption
C) a divergence between private and social costs
D) a free-rider problem
Q4) To avoid inefficient exclusion,the government often provides for free ________ but ________ goods and services.
A) rivalrous; excludable
B) non-rivalrous; excludable
C) rivalrous; non-excludable
D) non-rivalrous; non-excludable
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Q1) A gallon of milk costs $4 in Bonland.If the government fixes the price at $3.50,________.
A) the quantity demanded of milk will fall
B) the quantity of milk supplied will increase
C) a shortage of milk will occur in the market
D) there will be an excess supply of milk in the market
Q2) If a tax is imposed per unit of a good sold,________.
A) the supply curve for the good shifts to the right
B) the supply curve for the good shifts to the left
C) the demand curve for the good shifts to the right
D) the demand curve for the good shifts to the left
Q3) Consumer sovereignty is to free markets what paternalism is to ________.
A) government interventions
B) corruption
C) a welfare state
D) government failures
Q4) Suppose a tax is imposed on the seller for each unit of "Chocochip," a candy bar.How will this tax affect the consumers? Explain with a diagram.
Q6) What are transfer payments? Give two examples. Page 12
Q5) What are the objectives of government taxation and spending?
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Chapter 11: Markets for Factors of Production
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Q1) When a firm hires 10 units of labor,20 pens are produced.When it hires another unit of labor,the total output increases to 23 pens.If the price of one pen is $2,the value of the marginal product of the eleventh unit of labor is ________.
A) $1.50
B) $2
C) $4
D) $6
Q2) Refer to the table above.If the rental price of machines is $100 per day,how many machines should the firm rent to maximize profits?
A) 4
B) 5
C) 6
D) 7
Q3) What is the difference between labor-saving technology and labor-complementary technology?
Q4) What are the factors that affect the supply curve of labor?
Q5) Without any change in the demand for labor,how will shifts in the supply of labor affect equilibrium wage and employment?
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Chapter 12: Monopoly
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Q1) A copyright is a source of ________ market power.
A) legal
B) natural
C) regulated
D) competitive
Q2) Refer to the figure above.What is the profit-maximizing quantity that the monopolist should produce if it faces a constant marginal cost of $3?
A) 200 units
B) 300 units
C) 400 units
D) 600 units
Q3) Refer to the figure above.If the average cost faced by the monopolist when it produces and sells the optimal output is $4,the monopolist ________.
A) incurs a loss of $60
B) incurs a loss of $120
C) makes a profit of $60
D) makes a profit of $90
Q4) Differentiate between a patent and a copyright.
Q5) Differentiate between a socially optimal price and a fair-returns price.
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Chapter 13: Game Theory and Strategic Play
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Q1) Refer to the table above.Which statement is true?
A) John and Trevor both have a dominant strategy in this game.
B) Only John has a dominant strategy in this game.
C) Only Trevor has a dominant strategy in this game.
D) Neither John nor Trevor have a dominant strategy in this game.
Q2) Refer to the scenario above.This game is ________.
A) a zero-sum game for both players
B) not a zero-sum game for either players
C) a zero-sum game for the kicker, but not for the goalie
D) a zero-sum game for the goalie, but not for the kicker
Q3) Refer to the scenario above.What is likely to be the impact on Firm A's sales if Firm A decides not to sponsor the event?
A) A 7 percent increase in sales
B) A 0 percent increase in sales
C) A 2 percent increase in sales
D) A 10 percent increase in sales
Q4) How do we arrive at a Nash equilibrium in a matrix game?
Q5) When does a game have a first-mover advantage?
Q6) Differentiate between a payoff matrix and a game tree.
Q7) What is a zero-sum game? Explain with an example.
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) Which of the following is true?
A) Markets with four or more firms are nearly competitive.
B) Markets with only two firms cannot be competitive.
C) A monopoly market can be competitive.
D) Number of firms is not a guarantee of the competitiveness of a market.
Q2) The profit earned by a monopolistic competitor in the long run after the entry of new firms is ________.
A) higher than the profit earned by the firm before the entry of new firms
B) lower than the profit earned by the firm before the entry of new firms
C) equal to the profit earned by a monopolist in the long run
D) higher than the profit earned by a perfect competitor in the long run
Q3) A monopolistically competitive firm ________.
A) can increase price without losing all of its business
B) loses all of its business if it increases price slightly
C) faces a perfectly elastic demand curve
D) faces a perfectly inelastic demand curve
Q4) Is there any similarity between a monopoly and a monopolistically competitive firm in the long run? Explain your answer.
Q5) Why does a monopolistic competitor earn zero economic profits in the long run?
Q6) What determines the success of a cartel?
Page 17
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Chapter 15: Trade-Offs Involving Time and Risk
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Q1) When economists value rewards that will be experienced in the future,they multiply the reward by a ________.
A) positive factor greater than 1
B) positive factor less than 1
C) negative factor greater than 1
D) negative factor less than 1
Q2) Refer to the scenario above.What is the present value of $3,400 to be received after 5 years?
A) $2,300.78
B) $2,540.68
C) $3,200.22
D) $3,526.44
Q3) Refer to the scenario above.The interest that you will earn after a year is equal to ________.
A) $10
B) $30
C) $32.24
D) $52
Q4) How does the idea of independent events help explain the gambler's fallacy in a roulette game?
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Chapter 16: The Economics of Information
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Q1) In which of the following markets are buyers likely to have private information?
A) The market for used cars
B) The market for fresh fruits and vegetables
C) The market for banking services
D) The market for health insurance
Q2) Which of the following is likely to be an example of a principal-agent relationship?
A) The relationship between two colleagues
B) The relationship between a teacher and her student
C) The relationship between an employer and a worker
D) The relationship between two nations
Q3) Robert changed jobs and relocated to a new city.He initially decided to rent a small apartment close to his place of work.However,he decided to live in a much bigger and costlier apartment when he found that his employer would pay him a house rent allowance.This is an example of ________.
A) adverse selection
B) moral hazard
C) the prisoners' dilemma
D) the free-rider problem
Q4) How can a buyer of car insurance help reduce the effects of adverse selection?
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Chapter 17: Auctions and Bargaining
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Q1) Buyers and sellers in a flea market often determine the terms of exchange through a process of ________.
A) collective bargaining
B) bilateral bargaining
C) sniping
D) arbitration
Q2) Kim is participating in an auction in which bids are placed publicly and the price of the good being auctioned increases until there is only one standing bid.This is an example of a(n)________ auction.
A) English
B) Dutch
C) first-price
D) second-price
Q3) Which of the following is a similarity between a second-price auction and an English auction?
A) Bids are placed privately.
B) Bids are placed publicly.
C) Bidders place their bids simultaneously.
D) The winner pays an amount equal to the second-highest bid.
Q4) What is the reason for the popularity of auctions among consumers?
Page 20
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Chapter 18: Social Economics
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Q1) Refer to the scenario above.Which of the following will hold true if Elly is known to be vengeful?
A) A socially efficient outcome will occur.
B) Multiple equilibria will occur.
C) The outcome will be equitable.
D) A socially inefficient equilibrium will occur.
Q2) Refer to the scenario above.Which of the following is likely to happen if Elly is known to be vengeful?
A) Neither of them will make money.
B) Only Elly will make money.
C) Only Elly's employee will make money.
D) Both Elly and her employee will earn money.
Q3) Refer to the scenario above.This is an example of ________.
A) an ultimatum game
B) the prisoners' dilemma
C) a zero-sum game
D) a symmetric game
Q4) Why do people donate less when it is costlier to give?
Q5) Under what circumstances will the equilibrium in a trust game be efficient?
Q6) Why is the equilibrium in a trust game socially inefficient?
Page 21
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