Honors Microeconomics Practice Questions
Course Introduction
Honors Microeconomics is an advanced course designed to provide a rigorous introduction to the principles of microeconomic theory and analysis. The course covers core topics such as consumer and producer behavior, market structures, game theory, market failures, and welfare economics, with an emphasis on critical thinking, mathematical modeling, and real-world application. Through theoretical exploration and practical case studies, students will develop a deep understanding of how individual agents make decisions, how markets function, and how government policy can impact economic outcomes. This honors-level course is intended for highly motivated students seeking a challenge in economic analysis and quantitative reasoning.
Recommended Textbook Microeconomics 5th Edition by Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) By definition,economics is the study of
A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.
Answer: C
Q2) ________ is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact,it is a change in variable Y that caused a change in variable X.
A) The omitted variable
B) The positive-to-negative relationship
C) Reverse causality
D) Nonlinear slope
Answer: C
Q3) Which of the following is a result of a market economy?
A) environmental protection
B) an equal income distribution
C) agreement on equity
D) voluntary exchange
Answer: D
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Chapter
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Sample Questions
Q1) Refer to Table 2-8.If the two countries specialize and trade,who should export wheat?
A) There is no basis for trade between the two countries.
B) China
C) South Korea
D) They should both be exporting wheat.
Answer: B
Q2) In a free market there are virtually no restrictions,or at best few restrictions on how factors of production can be employed.
A)True
B)False
Answer: True
Q3) Refer to Figure 2-4.A movement from Y to Z
A) represents an increase in the demand for plastic products.
B) could occur because of general technological advancements.
C) is the result of advancements in food production technology.
D) is the result of advancements in plastic production technology.
Answer: D
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Page 4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D<sub>1</sub> and S<sub>2</sub> (point B)) If there is an decrease in the price of fertilizer used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks, how will the equilibrium point change?
A) The equilibrium point will move from B to A.
B) The equilibrium point will move from B to C.
C) There will be no change in the equilibrium point.
D) The equilibrium point will move from B to E.
Answer: B
Q2) Harvey Rabbitt pays for monthly cable TV service.Last week the cable company informed Harvey that his monthly cable price would go down because the city council has granted approval for three new cable companies to service his area.How is the market for cable TV services affected by this?
A) There is an increase in the supply of cable TV service.
B) There is a decrease in the demand for cable TV service.
C) There is a decrease in the quantity of cable TV service supplied.
D) There is a decrease in the supply of cable TV service.
Answer: A
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-4.If a minimum wage of $12.50 an hour is mandated,what is the quantity of labor supplied?
A) 80,000
B) 550,000
C) 630,000
D) 1,180,000
Q2) Refer to Table 4-3.The table above lists the marginal cost of cowboy hats by The Waco Kid,a firm that specializes in producing western wear.If the market price of cowboy hats is $50,producer surplus is
A) $0.
B) $4.
C) $62.
D) $138.
Q3) Rent control is an example of
A) a subsidy for low-skilled workers.
B) a price floor.
C) a price ceiling.
D) a black market.
Q4) What is "tax incidence"? What determines tax incidence in a competitive market?
Page 6
Q5) What area on a supply and demand graph represents consumer surplus?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) Refer to Figure 5-16.How much is Amit willing to pay to have 4 street lights installed?
A) $3,600
B) $2,700
C) $1,800
D) $900
Q2) If there is pollution in producing a product,then the market equilibrium price is too high and equilibrium quantity is too low.
A)True
B)False
Q3) The market demand for a public good can be determined by
A) adding up the total private benefits and external benefits that each quantity provides the citizens of a country.
B) adding up how much each citizen expects to consume at each possible price.
C) adding up how much each consumer is willing to pay for each unit of the public good.
D) estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.
Q4) How does a negative externality in production reduce economic efficiency?
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is
A) negative, so Sefton considers potatoes to be an inferior good.
B) positive, so Sefton considers potatoes to be an inferior good.
C) positive, so Sefton considers potatoes to be a normal good and a necessity.
D) negative, so Sefton considers potatoes to be a normal good.
Q2) Refer to Figure 6-10.A perfectly elastic supply curve is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.
Q3) A study of the effects of the minimum wage on employment of low-skilled workers estimated the price elasticity of demand for low-skilled workers is -0.75.Suppose that the government is considering raising the minimum wage from $7.25 per hour to $7.75 per hour.Based on this information,calculate the percentage change in the employment of low skilled workers.Use the midpoint formula.
Q4) Briefly explain the economic concept of elasticity.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) When consumers pay only a fraction of the true cost of medical services,their demand increases.The marginal cost of producing these extra services
A) is greater than the marginal benefit consumers receive from them. B) is less than the marginal benefit consumers receive from them. C) is equal to the marginal benefit consumers receive from them. D) is zero due to the insurance payments.
Q2) Refer to Figure 7-2.The efficient price of medical services is
A) $25.
B) $40.
C) $55.
D) >$55.
Q3) Refer to Figure 7-2.The efficient quantity of medical services is A) 200.
B) 500.
C) 700.
D) >700.
Q4) What is moral hazard?
Q5) Briefly explain 4 of the difficulties in making cross-country comparisons in health care outcomes.
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) How can a partnership raise funds needed for firm expansion?
Q2) In 2013,the dividend yield on Abercrombie & Fitch (ANF)stock rose from a low of 1.33% in May to 2.24% in October.Which of the following would have generated that result?
A) The closing price of ANF stock rose.
B) ANF announced an increase in the dividend it would pay per share.
C) The price-earnings ratio fell.
D) ANF issued bonds with a coupon rate equal to 2.24%.
Q3) Tanesha sells homemade candles over the Internet.Her annual revenue is $64,000 per year,the explicit costs of her business are $17,000,and the opportunity costs of her business are $22,000.What is her economic profit?
A) $17,000
B) $25,000
C) $42,000
D) $47,000
Q4) Who owns a corporation?
A) the board of directors
B) the stockholders
C) the employees
D) the CEO
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Table 9-6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded,how many hats will Belize gain compared to the "without trade" numbers?
A) -100
B) 0
C) 150
D) 250
Q2) When Roxanne,a U.S.citizen,purchases a designer dress from Barneys of New York that was made in Milan,the purchase is
A) both a U.S. and an Italian import.
B) a U.S. import and an Italian export.
C) a U.S. export and an Italian import.
D) neither an export nor an import for either country.
Q3) In 2012,the largest exporter in the world was
A) Japan.
B) Germany.
C) China.
D) the United States.
Q4) How have U.S.imports and exports,as a fraction of GDP,changed from 1970 to the present?
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Refer to Figure 10-9.The change in the budget constraint from BC<sub>1</sub> to BC<sub>2</sub> implies
A) the prices of DVDs and CDs have increased.
B) income and the prices of DVDs and CDs have increased.
C) the price of DVDs has increased and the price of CDs has decreased.
D) the price of DVDs has decreased and the price of CDs has increased.
Q2) If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause
A) total utility to decrease.
B) a consumer to get no satisfaction from consuming apples.
C) a consumer's total utility to increase.
D) a consumer to go beyond her optimal consumption of apples.
Q3) Refer to Figure 10-2.When the price of ice cream cones increases from $2 to $3,quantity demanded decreases from 4 ice cream cones to 3 ice cream cones.This change in quantity demanded is due to
A) the price and output effects.
B) the income and substitution effects.
C) the law of diminishing marginal utility.
D) the fact that marginal willingness to pay falls.
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) After Suzie,owner of Suzie's Sweet Shop,hires her 8th worker the average product of labor declines.Which of the following statements must be true?
A) The marginal product of the 8th worker is negative.
B) The marginal product of the 8th worker is less than the average product of labor before the 8th worker was hired.
C) Suzie's profits would be greater if she did not hire the 8th worker.
D) The average product of labor is negative.
Q2) As output increases
A) average variable cost becomes smaller and smaller.
B) the difference between average total cost and average variable cost decreases. C) marginal cost increases continuously.
D) the difference between average total cost and average variable cost becomes greater and greater.
Q3) What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?
Q4) What is an isocost line? What is the slope of an isocost line?
Q5) State the law of diminishing marginal returns.
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Page 13
Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54,then to maximize profits the firm should
A) continue producing at the current output.
B) produce a larger level of output.
C) produce a smaller level of output.
D) There is not enough information given to answer the question.
Q2) Refer to Figure 12-5.If the market price is $20,what is the amount of the firm's profit?
A) $5,400
B) $6,750
C) $8,100
D) $16,200
Q3) Competition has driven the economic profits in the video rental business to zero.Surya Bacha,who owns a video rental business,would be better off leaving the industry for another alternative.
A)True
B)False
Q4) What is meant by the term "long-run competitive equilibrium?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Why do most firms in monopolistic competition typically make zero profit in the long run?
A) because firms produce differentiated products
B) because the lack of entry barriers would compete away profits
C) because firms do not produce at their minimum efficient scale
D) because the total market is not large enough to accommodate so many firms
Q2) In the long run,what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?
A) The demand curve will shift to the left and became more elastic.
B) The demand curve will shift to the left and became less elastic.
C) The demand curve will shift to the right and became more elastic.
D) The demand curve will shift to the right and became less elastic.
Q3) Refer to Figure 13-17.What is the allocatively efficient output for the firm represented in the diagram?
A) Q<sub>f</sub> units
B) Q<sub>g</sub> units
C) Q<sub>h</sub> units
D) Q<sub>j</sub> units
Q4) What is the difference between zero accounting profit and zero economic profit?
Q5) Why are many companies concerned about brand management?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Which of the following is not an example of a government-imposed entry barrier?
A) patents
B) occupational licensing
C) barriers to international trade
D) antitrust legislation
Q2) Which of the following is important in determining the extent of competition in an industry?
A) the minimum level of short run average total costs of production
B) the minimum efficient scale of production relative to market demand
C) whether or not the industry product is differentiated or standardized
D) the level of market demand for the industry's product
Q3) Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry,some economists prefer another measure of competition,the Herfindahl-Hirschman Index.
A)True
B)False
Q4) Most economists are concerned about entry barriers.Why is this so important to them?
Q5) Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?
A) For the first time horizontal mergers were allowed - with government approval - and vertical mergers were allowed without need for approval from the government.
B) For the first time concentration ratios were used to evaluate the degree of competition in the industries of firms that proposed mergers.
C) The Division began to systematically consider the economic consequences of proposed mergers.
D) Proposed mergers no longer needed the approval of the Federal Trade Commission or the court system.
Q2) A monopoly is defined as a firm that has the largest market share in an industry. A)True B)False
Q3) Provide two examples of a government barrier to entry.
Q4) How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) The Bay Area subway system,BART,offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.
A) more income elastic
B) less income elastic
C) more price elastic
D) less price elastic
Q2) Refer to Table 16-1.Which of the following can one conclude from the data above?
A) The data provides clear evidence of price discrimination in online bookstore market.
B) Amazon.com and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two companies.
C) The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences.
D) Walmart.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business.
Q3) Under what circumstances will the law of one price hold,and when might it not hold?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) What is the marginal productivity theory of income distribution?
Q2) A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labor.
A)True
B)False
Q3) Marginal revenue product can be calculated using the formula marginal product × output price
A) only if output price is constant.
B) only if the marginal product of labor is constant.
C) only if the both marginal product of labor and the output price are constant.
D) only if the firm has market power in the labor market
Q4) Refer to the Article Summary.The article addresses education reform by way of newly designed applications.If any of these apps lead to a more skilled and better trained public,the economy would experience
A) an increase in human capital.
B) an increase in the supply of labor.
C) an increase in comparable worth.
D) a decrease in compensating differentials.
Q5) Why are there superstar baseball players but no superstar chiropractors?
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Q1) Explain the effect of price elasticities of supply and demand on tax incidence.
Q2) A Lorenz curve summarizes the information provided by a Gini coefficient.
A)True
B)False
Q3) Refer to Figure 18-1.The sales tax revenue collected by the government is represented by the area
A) B+C.
B) F+G.
C) E+H.
D) B+C+F+G.
Q4) Refer to Table 18-9.Calculate the income tax paid by Sylvia,a single taxpayer with an income of $70,000.
A) $21,000
B) $15,740
C) $15,400
D) $13,475
Q5) When the demand for a product is less elastic than the supply,consumers pay the majority of the tax on the product.
A)True
B)False
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