Honors Microeconomics Final Exam
Course Introduction
Honors Microeconomics is an advanced course that explores the fundamental principles of microeconomic theory with a rigorous analytical approach. Students will examine topics such as consumer behavior, production and cost analysis, market structures, game theory, and the role of government intervention in markets. The course emphasizes critical thinking, quantitative reasoning, and the application of economic models to real-world scenarios. Designed for high-achieving students, Honors Microeconomics includes in-depth discussions, problem-solving exercises, and case studies to develop a deeper understanding of how individuals and firms make economic choices and interact within various market environments.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 10th Edition by Walter Nicholson
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17 Chapters
334 Verified Questions
334 Flashcards
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Chapter 1: Preferences and Utility
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Sample Questions
Q1) Which of the following utility functions represent the same preferences as \(U ( x , y ) = \sqrt { x \cdot y }\)
A) \(U ( x , y ) = 10 \sqrt { x y }\) .
B)U(x,y)= x . y.
C)U(x,y)= ln x + ln y.
D)All of these represent the same preferences.
Answer: D
Q2) Which of the following utility functions best represents the idea that two goods,x and y,are perfect complements?
A) \(U ( x , y ) = \sqrt { x y }\)
B)U(x,y)= x + y.
C) \(U ( x , y ) = | x - y |\) .
D)U(x,y)= min (x,y).
Answer: D
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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Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) "If an individual is to maximize the utility received from consumption,he or she should spend all available income...." This statement assumes
A)that saving is impossible.
B)that the individual is not satiated in all goods.
C)that no goods are "inferior."
D)that saving is impossible and that the individual is not satiated in all goods.
Q2) Suppose an individual's MRS (of steak for beer)is 2:1.That is,at the current consumption choices he or she is willing to give up 2 beers to get an extra steak.Suppose also that the price of a steak is $1 and a beer is 254.Then in order to increase utility the individual should
A)buy more steak and less beer.
B)buy more beer and less steak.
C)continue with current consumption plans.
Q3) The slope of the budget constraint line is
A)the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
B)the negative of the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
C)the ratio of income divided by price of y (I/p<sub>y</sub>).
D)none of these is correct.
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4
Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) A decrease in demand is represented by
A)a shift outward of the entire demand curve.
B)a shift inward of the entire demand curve.
C)a movement along the demand curve in a southeasterly direction.
D)a movement along the demand curve in a northwesterly direction.
Q2) The price elasticity of demand for a horizontal demand curve is A)0.
B)-1.
C)1.
D)-infinity.
Q3) If the compensated and Marshallian demand curves for a good intersect,at that point the Marshallian 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.
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Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) Quasi-concavity of utility functions insures that with only two goods,these goods must be
A)gross substitutes.
B)gross complements.
C)net substitutes.
D)net complements.
Q2) 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.
Q3) For the "Composite Commodity Theorem" to hold,all goods in the composite must A)have constant prices.
B)have constant relative prices.
C)be used in fixed proportions.
D)be net complements.
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Chapter 5: Uncertainty and Information
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Sample Questions
Q1) Which of the following utility functions would indicate the most (relative)risk averse behavior?
A)U(W)= W.
B)U(W)= \(\sqrt { W }\) .
C)U(W)= ln W.
D)U(W)= -1/W.
Q2) Which of the following utility functions exhibits constant absolute risk aversion?
A)U(W)= W.
B) \(U ( W ) = W - 0.5 W ^ { 2 }\)
C)U(W)= ln W.
D)U(W)= \(- e ^ { - W }\) .
Q3) If a fair game is played many times the monetary losses or gains will
A)approach zero.
B)be negative.
C)be positive.
D)result in an outcome that cannot be determined without more information.
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7
Chapter 6: Strategy and Game Theory
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Sample Questions
Q1) The general message of the folk theorems is that
A)Nash equilibria may not be sustainable over many replications of a game.
B)Payoffs that are unambiguously preferred to Nash equilibria may be sustainable over many replications of a game.
C)Credible threats may inhibit the achievement of mutually beneficial outcomes over many replications of a game.
D)Just plain folk play the best games.
Q2) For an infinitely repeated game promising A per period with continuing cooperation,B for the one period gain from cheating and C per period for the non-cooperative solution (B > A > C)will have a subgame perfect Nash equilibrium in trigger strategies providing
A) > B/(A + C).
B) > (B - A)/(B - C).
C) > B/(A - C).
D) > A/(B + C).
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8
Chapter 7: Production Functions
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Sample Questions
Q1) 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.
Q2) The marginal rate of technical substitution (RTS)of labor for capital measures
A)the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used.
B)the amount by which labor input can be reduced while holding quantity produced constant when one more unit of capital is used.
C)the ratio of total labor to total capital.
D)the ratio of total capital to total labor. .
Q3) The <u>average</u> productivity of labor reaches its maximum
A)at the point of inflection of the total product curve.
B)where the slope of the total product curve is steepest.
C)where the slope of the total product curve is zero.
D)where marginal and average productivity are equal.
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Page 9
Chapter 8: Cost Functions
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Sample Questions
Q1) A firm's economic profits are given by
A)total revenue minus total accounting cost.
B)the owner's opportunity cost.
C)total revenue minus total economic cost.
D)total revenue minus the cost of capital.
Q2) The input demand functions that can be derived from cost functions are referred to as "contingent" demand functions because the functions:
A)assume input costs are constant.
B)express input demand as a function of output.
C)depend on the assumption of profit maximization.
D)assume constant returns to scale in production.
Q3) For the cost function C = 100 + .3q,
A)marginal cost is constant.
B)average cost is U-shaped.
C)fixed costs diminish with q.
D)all of the other answers are correct.
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Chapter 9: Profit Maximization
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Sample Questions
Q1) A profit-maximizing firm's demand function for labor can be found by differentiating
A)the profit function with respect to w.
B)the cost function with respect to w.
C)the supply function with respect to w.
D)the production function with respect to w.
Q2) If price is equal to short-run average variable cost,the firm is at the point known as A)the break even point.
B)the profit maximizing point.
C)the shutdown point.
D)the revenue maximizing point.
Q3) If the firms in perfectly competitive industries each have a production function given by \(q = k ^ { 1 / 4 } l ^ { 3 / 4 }\) and the price elasticity of demand for the industry's output is -1,the wage elasticity of demand for labor by the industry will be A)0.
B) \(- \infty\)
C)-1. D)-2.
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Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) For an increasing cost industry,the long-run supply curve has a(n)_____________ elasticity of supply
A)infinite.
B)negative.
C)positive.
D)zero.
Q2) "Missing markets" result from
A)high costs of the establishment of such markets.
B)strict price controls.
C)the inability of producers to gain economies of scale.
D)foreign countries dominating a domestic market for a product.
Q3) In the opening of free trade,if world prices of a good are less than domestic prices of that same good,
A)domestic consumers will experience a loss of surplus.
B)domestic prices will drop to the world price level.
C)all domestic producers of that good will try to find another market because they can't compete with foreign producers.
D)domestic producers will increase the quantity supplied in order to crowd out the foreign-produced good.
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Page 12
Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) Consider three ways of allocating two goods in a two-person exchange economy.
I.Both individuals take prices as given and equilibrium prices are established by an impartial auctioneer.
II.One individual can act as a perfect price discriminator and force the other individual to pay a different price for each unit of a good that is traded.
III.One individual is a monopolist and can charge the other individual a single,utility-maximizing price.
Which of these situations is efficient?
A)None of them.
B)Only I.
C)I and II,but not III.
D)I and III,but not II.
E)All of them.
Q2) Every allocation of goods in a one good world is efficient because A)MRSs are equalized.
B)there is enough to go around for everyone.
C)no one can be made better off without making someone else worse off.
D)it doesn't matter to whom an extra unit of the good is given.
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Chapter 12: Monopoly
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Sample Questions
Q1) A natural monopoly
A)is a monopoly in the production of raw materials.
B)occurs when one firm can supply the entire market more cheaply than can a number of firms.
C)is one result of a patent.
D)necessarily involves inefficient pricing.
Q2) A profit maximizing monopoly will produce that output for which
A)marginal revenue equals price.
B)average cost is minimized.
C)marginal cost is minimized.
D)marginal cost equals marginal revenue.
Q3) A price discriminating monopolist having identical costs in two separated markets should charge a higher price in that market
A)which has a higher demand.
B)which has a more elastic demand.
C)which has a less elastic demand.
D)which has a higher marginal revenue.
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Page 14
Chapter 13: Imperfect Competition
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Sample Questions
Q1) Product differentiation complicates the study of oligopolies because such markets may not
A)be efficient.
B)have prices equal to marginal cost.
C)have free entry and exit.
D)obey the law of one price.
Q2) What factor would not help resolve the Bertrand paradox (that a perfectly competitive outcome can emerge with as few as two firms in the market)if the basic Bertrand model were extended to include it?
A)Repeated interaction.
B)Search costs.
C)Sequential moves.
D)Product differentiation.
Q3) A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:
A)additional sales.
B)reduced costs.
C)increased profits.
D)demand.
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Page 15
Chapter 14: Labor Markets
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Sample Questions
Q1) Consider two situations: In situation A the production of widgets is monopolized by a single firm.In situation B the production of widgets is perfectly competitive.In both situations the supply of labor to widget makers is infinitely elastic at a wage of w.In this case,the product \(p \cdot M _ { l }\)
A)will be the same in the two cases.
B)will be higher in case B than in case A.
C)will be higher in case A than in case B.
D)From the information given it is not possible to make a definite statement about the marginal value product of labor.
Q2) "Compensating wage differentials" arise because
A)workers possess different skills.
B)workers prefer some jobs to others.
C)firms pay higher wages for workers with higher marginal productivities.
D)firms discriminate in hiring.
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)it is impossible to predict what will happen to hours worked.
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Page 16
Chapter 15: Capital and Time
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Sample Questions
Q1) Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (c<sub>1</sub> and c<sub>2</sub>).Any funds not spent in period 1 will earn interest (at the rate r)which will increase purchasing power in period 2.
Consider four possible reactions to an increase in r:
I.c<sub>1</sub> increases.
II.c<sub>1</sub> decreases.
III.c<sub>2</sub> increases.
IV.c<sub>2</sub> decreases.
Which of these is consistent with the hypothesis that both c<sub>1</sub> and c<sub>2</sub> are normal goods?
A)I,II,III,and IV.
B)I,II,and IV,but not III.
C)I,III,and IV,but not II.
D)II and III,but not I and IV.
E)I,II and III,but not IV.
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17
Chapter 16: Asymmetric Information
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Sample Questions
Q1) Continue to suppose as in the previous question that the utility function for each of the firm's 5 workers is \(U ( l ) = w l - l ^ { 2 }\) where l is hours worked and w is the wage.Suppose now that the firm can only monitor the total hours worked by the group and pay each worker an equal share of the wage \(w = 20\) times the total number of hours.How many hours will each worker choose to work?
A)2 hours.
B)4 hours.
C)8 hours.
D)10 hours.
Q2) Which of the following illustrates adverse selection?
A)Individuals sometimes mistakenly buy defective cameras.
B)Individuals will not search for bargains for low cost items.
C)Individuals know a lot about their family health history when they buy insurance. D)Individuals can choose whether to drive safely or not.
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Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be
A)the firm's marginal cost.
B)the social marginal cost.
C)the difference between the social marginal cost and the firm's marginal cost.
D)the sum of the social marginal cost and the firm's marginal cost.
Q2) A nonexclusive good is a good which
A)is sold in various markets.
B)is impossible to keep people from enjoying the benefits the good provides.
C)is produced by a perfectly competitive firm.
D)is produced at the lowest possible cost.
Q3) Each of the following provides incentives to reduce a negative externality except
A)merger with affected firms.
B)subsidizing consumption of the good being produced.
C)bargaining among firms.
D)taxation of the externality.
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