Honors Microeconomics Test
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Course Introduction
Honors Microeconomics provides an advanced exploration of the fundamental principles governing individual and firm decision-making in various market structures. This course delves into concepts such as consumer and producer theory, market equilibrium, elasticity, and the analysis of competitive and non-competitive markets. In addition to classical models, students critically examine the effects of government intervention, externalities, and information asymmetries. With a strong emphasis on analytical reasoning, mathematical modeling, and real-world applications, the course prepares students for further study in economics or related fields, fostering a deeper understanding of the forces shaping economic behavior and outcomes.
Recommended Textbook
Microeconomics Theory and Applications 12th Edition by Edgar K. Browning
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Chapter 1: An Introduction to Microeconomics
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Q1) If a production possibility frontier (PPF)is drawn concave to the origin with the quantity of shoes on the X-axis and the quantity of T-shirts on the Y-axis,a movement downward along the PPF reflects:
A)an increasing opportunity cost of producing T-shirts.
B)an increasing opportunity cost of producing shoes.
C)constant opportunity cost of producing T-shirts.
D)constant opportunity cost of producing shoes.
Answer: B
Q2) The real price of a good reflects:
A)the purchasing power of consumers.
B)its nominal price adjusted for the changing value of money.
C)the absolute average price of goods and services.
D)the total amount of money in circulation in the economy.
Answer: B
Q3) Which of the following is generally considered a microeconomic question?
A)The relationship between the money supply and nominal GDP
B)The relationship between the unemployment and inflation
C)The impact of a tax cut on public saving
D)The effect of anti-discrimination laws on employers' hiring practices.
Answer: D
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Chapter 2: Supply and Demand
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Q1) When the market for a good,such as gasoline,is competitive and its price suddenly increases substantially,we can infer:
A)that the higher price was most likely arbitrarily set by greedy gas companies seeking increased profits.
B)that the higher price was most likely a response to a change in market forces beyond any individual firm's control.
C)nefarious intent on the part of gasoline companies and that a government mandated price ceiling would serve consumers' interests.
D)that prices are not good indicators of relative scarcity.
Answer: B
Q2) Which of the following is likely to shift the demand for chocolates to the left?
A)An increase in the price of cocoa used to make chocolates
B)Medical reports suggesting increased risk of memory loss among the aged due to high chocolate consumption
C)A decrease in the price of chocolates
D)The introduction of minimum wages by the government in an attempt to improve the average wage level in the economy and alleviate poverty
Answer: B
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Chapter 3: The Theory of Consumer Choice
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Q1) Which of the products described below is mostly likely considered an inferior good?
A)At lower prices people consume higher quantities of shredded wheat.
B)As incomes increase canned meat product consumption falls.
C)The higher the price of jeans the higher the demand for jeans.
D)The lower the price of jeans the more the demand for shirts.
Answer: B
Q2) Which of the following will lead to corner equilibrium?
A)The consumer has a fixed amount of income
B)The first unit of one good is not worth its cost
C)The consumer has L-shaped indifference curves
D)The proportion of income spent on both goods is the same
Answer: D
Q3) For the utility function U =3x5y,the slope of the indifference curve is: A)-3/5.
B)-5/3.
C)dependent on the values for x and y.
D)dependent on the level of utility.
Answer: A
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Chapter 4: Individual and Market Demand
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Q1) In an effort to deter alcohol consumption by youths,raising the legal age for alcohol consumption causes a _____ the demand curve for alcohol,while raising the federal Per unit tax on alcohol would cause a _____ the demand curve.
A)movement along;leftward shift of
B)rightward shift of;movement along C)leftward shift of;movement along D)movement along;rightward shift of
Q2) The bandwagon effect causes the market demand to become:
A)relatively more elastic.
B)relatively less elastic.
C)perfectly inelastic.
D)unit elastic.
Q3) The income effect of a price change:
A)is always larger than the substitution effect in the inferior good case.
B)produces a backward-bending income-consumption curve.
C)reinforces the substitution effect in the normal good case.
D)is always positive.
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Chapter 5: Using Consumer Choice Theory
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Q1) Compared to a system of providing education free of cost at government schools,a voucher program that provides the means for parents to send their school-age children to private schools at government expense:
A)will allow families to consume a higher quantity and better quality of education. B)will lower the quality of education provided.
C)will not affect the quantity and quality of education.
D)will result in a lower quantity of education consumed.
Q2) Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.The expected return on Microsoft stock over the next year is thus _____%.
A)15
B)12.5
C)17.5
D)20
Q3) Show and explain why substituting an unrestricted cash transfer for an excise subsidy of equal cost to the government must lead to less consumption of the subsidized good and more consumption of other goods.
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Chapter 6: Exchange, Efficiency, and Prices
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Q1) Which of the following is true of price taking firms?
A)They cannot affect price by haggling
B)They face an inelastic demand curve
C)They are also price takers in the input market
D)They cannot affect the market supply of a good
Q2) Along the contract curve _____.
A)every point is equitable
B)two individuals have equal marginal rates of substitution
C)any trade that benefits one person will necessarily benefit the other
D)indifference curves of consumers are intersecting
Q3) In an Edgeworth Box diagram,showing the distribution of two goods among two individuals:
A)there is one unique efficient point.
B)there are many possible efficient points.
C)if trade occurs among points along the contract curve it will leave both individuals better off.
D)every point of intersection between the two individuals' indifference curves is efficient.
Q4) What did the moral philosopher Adam Smith mean by his invisible hand theorem?
Q5) Are non-price allocation mechanisms efficient? Explain.
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Chapter 7: Production
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Q1) If a firm doubles its usage of all inputs and output less than doubles,the production function Is said to exhibit:
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)decreasing marginal returns to a fixed factor of production.
Q2) In Figure 7.2,the law of diminishing marginal returns comes into play beyond point
A)A
B)B
C)C
D)D
Q3) Convexity of a curve implies that the slope of the curve:
A)is zero.
B)is constant.
C)diminishes along the curve.
D)approaches infinity.
Q4) Define and then derive the expression for the marginal rate of technical substitution.
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Chapter 8: The Cost of Production
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Q1) An important determinant of market structure is:
A)the difference between short-run average cost and long-run average cost for a given rate of output.
B)the elasticity of market demand where it intersects the industry supply curve.
C)the slope of the expansion path.
D)the level of output at which long-run average cost is at a minimum relative to market demand.
Q2) Average fixed cost [AFC] is the:
A)horizontal distance between average total cost [ATC] and average variable cost [AVC].
B)vertical distance between ATC and AVC.
C)horizontal distance between ATC and the Y-axis.
D)vertical distance between ATC and the X-axis.
Q3) Learning by doing:
A)results in higher costs in the long run than in the short run.
B)is a result of technological progress.
C)increases productivity of the inputs.
D)results from the increased use of inputs in production.
Q4) Do you think the marginal cost curve of a petroleum refinery will be U-shaped? Explain your answer.
Page 10
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Chapter 9: Profit Maximization in Perfectly Competitive Markets
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Q1) Refer to Figure 9-3.At the output level OB,total profits equal the area given by _____.
A)FTDE
B)GMLR
C)FHSR
D)FBOR
Q2) The long-run cost function faced by each producer in a perfectly competitive industry is given by: MC(Q)= 20 - 6Q + Q<sup>2</sup>.The corresponding long-run average cost function is AC(Q)= 20 - 3Q + Q<sup>2</sup>/3.The market demand curve for the product is D(P)= 1100 - 50P.
a)What is the long-run equilibrium price in this industry? At this price,how much would an individual firm produce?
Q3) Which of the following is true of a long-run competitive equilibrium?
A)The market has a horizontal long-run supply curve.
B)Inputs employed in the industry cannot earn more in other industries.
C)Firms in the market earn high abnormal profits.
D)Firms face constant input costs irrespective of the output level.
Q4) Derive the first-order and second-order conditions for perfect competition.
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Chapter 10: Using the Competitive Model
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Q1) Which of the following correctly identifies the effect of an import quota on a good?
A)Domestic producers do not gain from an import quota.
B)The gain to domestic producers is higher than the loss to domestic consumers.
C)Prices in the global market will fall due to the imposition of an import quota.
D)Domestic consumers bear the burden of an import quota in terms of higher domestic prices.
Q2) Refer to Figure 10-5.Given that trade in bananas is free from any restrictions,which of the following would be true if P<sub>5</sub> was lesser than P<sub>3</sub>?
A)The domestic demand for bananas would be fully satisfied through imports.
B)The U.S.would not import bananas;domestic demand would be satisfied by domestic production.
C)Domestic producers would be worse off and foreign producers would be better off.
D)Domestic consumers would lose surplus as they would have to pay a higher domestic price.
Q3) Is the outcome of a competitive market efficient? Explain with the help of a graph.
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Chapter 11: Monopoly
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Q1) A profit-maximizing monopoly firm will earn excess profits if it is able to produce a level of output where:
A)average revenue is equal to marginal cost.
B)marginal revenue is greater than marginal cost.
C)price is equal to marginal cost.
D)average revenue is greater than average cost.
Q2) At an output of 1,000 units,a monopoly firm's average revenue is $40,its marginal revenue is $30,its marginal cost is $30,its average variable cost is $35,and fixed costs are $5,000.Given this information,we can conclude that the monopolist:
A)is earning zero economic profit.
B)is earning an economic profit equal to $5,000.
C)is making an economic loss and should shut down.
D)should increase output to maximize profit.
Q3) Which of the following is true of a monopolist?
A)A monopolist takes the price of the product as given and produces as much output as possible.
B)A monopolist can price the product at any price,regardless of demand.
C)A monopolist can choose to produce at any price along the market demand curve.
D)A monopolist prices products at the highest point on the demand curve.
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Chapter 12: Product Pricing With Monopoly Power
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Q1) Which of the following is an advantage of peak-load pricing?
A)It allows a firm to reduce its total cost by reallocating its production.
B)It allows a firm to capture the entire consumer surplus.
C)It allows a firm to clearly identify each consumer's willingness to pay.
D)It reduces monopoly profits and increases consumer surplus.
Q2) Refer to Figure 12-2.Comparing the result of perfect competition with that of a perfectly price-discriminating monopolist,there is an efficiency loss equal to:
A)area VWE.
B)area HEF.
C)area JHFK.
D)zero.There will be no efficiency loss in either case.
Q3) Price discrimination is more common for firms selling services than for manufacturing firms because:
A)it is easier to prevent arbitrage of a service than of a manufactured product.
B)monopoly is more common in the production of services than in production of manufactured goods.
C)price elasticities of demand differ more among consumers of services than customers of manufactured goods.
D)firms selling services are more likely to have constant marginal cost curves.
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Chapter 13: Monopolistic Competition and Oligopoly
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Q1) The demand curve that a monopolistically competitive firm faces is _____.
A)downward-sloping but fairly elastic
B)upward-sloping but fairly inelastic
C)horizontal
D)vertical
Q2) For a monopolistically competitive firm,excess capacity is the difference between the equilibrium level of output and the level of output where:
A)marginal cost is minimum.
B)average total cost is minimum.
C)marginal revenue is maximum.
D)total revenue is maximum.
Q3) A monopolistically competitive firm that is maximizing profit will choose to produce at the level where:
A)total revenue is maximized.
B)average total cost exceeds average revenue.
C)marginal revenue equals marginal cost.
D)marginal revenue exceeds average revenue.
Q4) What is a cartel and why are cartels considered to be inherently unstable?
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Chapter 14: Game Theory and the Economics of Information
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Q1) Which of the following is likely to result from successful advertising?
A)A decrease in the market power of the firm
B)A decline in the demand for the firm's product
C)A decrease in the firm's input costs
D)A decline in the price elasticity of demand for the firm's product
Q2) Game theory is a method of analyzing:
A)the costs and benefits of a transaction.
B)the situations in which there are interdependent outcomes.
C)the factors that affect an individual's budget set.
D)the relation between returns and productivity of factors.
Q3) Which of the following is a benefit of advertising on the Internet?
A)It reduces the producer's cost of production.
B)It lowers the true price consumers pay for the product by reducing consumers' search costs.
C)It increases the supply of the product in the market and lowers its money price.
D)It reduces the deadweight loss in the market.
Q4) Compare the benefits and the costs of advertising.
Q5) Explain how advertising,when undertaken by all competing firms,actually reduces the market power of the firms.
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Chapter 15: Using Noncompetitive Market Models
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Q1) Antitrust laws state that the practice of predatory pricing is illegal as it allows the firm to consolidate monopoly power by driving other firms out of the market.What might be the challenges that a regulator may face while trying to prosecute a firm that is said to practice predatory pricing? (Predatory pricing is a pricing strategy where a firm prices a product below average variable cost (or short-run marginal cost)to drive rival firms out of the market)
Q2) Refer to Figure 15-1.What is most likely to happen if the market is oligopolistic as compared to a monopolistic market structure?
A)The deadweight loss in the market will be greater.
B)The equilibrium output will be lower.
C)The equilibrium price in the market will be lower.
D)The price and output will remain unchanged.
Q3) In Figure 15-3,if the maximum price allowed in the market is P<sub>1</sub>,output levels below Q<sub>1</sub> will:
A)yield more economic profit than at Q<sub>1</sub>.
B)yield positive but lesser economic profit than at Q<sub>1</sub>.
C)yield negative economic profit.
D)yield zero economic profit.
Q4) Define and illustrate iterated dominance and commitment strategy.
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Chapter 16: Employment and Pricing of Inputs
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Q1) Which of the following is true of a competitive industry's labor demand curve?
A)The industry labor demand curve is a horizontal summation of the individual firm's demand curves for labor.
B)The industry labor demand curve is less elastic than the individual firm's demand curves for labor.
C)The industry labor demand curve is a vertical summation of the individual firm's demand curves for labor.
D)The industry demand curve shows that at a lower price,less of the input is employed in the industry.
Q2) The supply curve of labor to a competitive firm is:
A)upward-sloping because of the law of diminishing marginal returns.
B)downward-sloping because the supply of labor increases as wages increase.
C)perfectly inelastic because the stock of labor is fixed in the long run.
D)horizontal because the firm can hire as many workers as it wants at the market wage.
Q3) Define monopsony in an input market and graphically illustrate equilibrium employment and wages under a monopsony.
Q4) Using calculus,show the profit-maximizing employment of inputs for an output market monopoly.
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Chapter 17: Wages, Rent, Interest, and Profit
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Q1) The key assumption of the income-leisure model:
A)is not applicable to the real world and so negates the usefulness of the model.
B)is not valid as employers will not cater to workers' income-leisure choices.
C)holds good in general because workers can vary work hours with overtime,leaves without pay and early retirement.
D)is only applicable to entrepreneurs and not salaried workers who are associated with less promising financial rewards.
Q2) In Figure 17-1,assume the worker is initially in equilibrium at point A.Weekly earnings and work effort are _____ respectively.
A)OY<sub>1</sub> and OL<sub>2</sub>
B)OY<sub>2</sub> and NL<sub>2</sub>
C)OY<sub>1</sub> and NL<sub>2</sub>
D)OY<sub>2</sub> and ON
Q3) What does the height of the supply curve in a labor market represent?
A)The marginal revenue product of a worker
B)The value of the output produced by a worker
C)The marginal value product of a worker
D)The minimum payment required to induce the worker to work
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Chapter 18: Using Input Market Analysis
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Q1) What determines who bears the burden of the social security tax?
Q2) Which of the following defines an efficiency wage?
A)It is the equilibrium wage rate in the labor market where the demand for labor exactly matches the supply of labor.
B)It is an above-market wage which increases the firms' profits by increasing the productivity of all factors of production.
C)It is an above-market wage which increases the firms' profits by lowering the costs of searching for,selecting,and training new workers.
D)It is a below-market wage which increases the employment opportunities in an economy and reduces overall poverty.
Q3) According to Figure 18-2,the proportion of the per-unit tax paid by the employers is: A)OA/OB.
B)AB/AC.
C)BC/AC.
D)BC/AB.
Q4) Using a graph,explain the employment effects of a binding minimum wage.Who benefits,who loses,and how large are these effects?
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Chapter 19: General Equilibrium Analysis and Economic Efficiency
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Q1) Assume that the price of steel rises because steel workers negotiate for higher wages.The impact of this increase in the price of steel on the market for aluminum is the result of the:
A)real income effect on aluminum.
B)disequilibrium effect on aluminum.
C)total price effect on aluminum.
D)spillover effect on aluminum.
Q2) Suppose wine production is capital intensive and corn production is labor intensive.An increase in the demand for wine will cause:
A)an increase in the marginal cost of corn relative to the marginal cost of wine.
B)an increase in the price of labor relative to the price of capital.
C)a decrease in the marginal cost of capital.
D)an increase in the price of capital relative to the price of labor.
Q3) The marginal rate of transformation measures the:
A)absolute cost of producing a commodity.
B)relative price of labor.
C)opportunity cost of one good in terms of the other.
D)rate at which one input is substituted for the other.
Q4) Why is efficiency considered to be a reasonable goal for economic performance?
Page 21
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Chapter 20: Public Goods and Externalities
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Q1) Explain with the help of a suitable figure,why the government needs to subsidize inoculation against a viral infection.
Q2) Which of the following aspects of the free-rider problem is overcome by government financing of a public good?
A)The problem of overproduction
B)The external cost associated with production
C)The tendency of people to withhold payment
D)The high search cost associated with the consumption of the good
Q3) When the entire costs and benefits of a transaction are borne by the participants of that transaction:
A)the market outcome will be inefficient.
B)then private costs and social costs are identical.
C)an external cost is imposed on the society.
D)an external benefit is generated in the society.
Q4) In Figure 20-1,the marginal external cost at the equilibrium output level is:
A)$0.
B)$40.
C)$10.
D)$28.
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