Honours Microeconomics Final
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Course Introduction
Honours Microeconomics offers an advanced and rigorous exploration of microeconomic theory, focusing on the behavior of individual consumers, firms, and markets. The course delves into the analysis of demand and supply, market equilibrium, consumer choice under uncertainty, production and cost functions, and different market structures such as perfect competition, monopoly, and oligopoly. Students will also engage with topics such as game theory, welfare economics, and the fundamentals of general equilibrium and information economics. Emphasis is placed on formal modeling and mathematical techniques to analyze economic problems, preparing students for further study or research in economics.
Recommended Textbook
Microeconomics 1st Canadian Edition by B. Douglas Bernheim
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Chapter 1: Introduction
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Q1) Normative economic analysis addresses
A) What ought to happen
B) Factual issues
C) The cause-and-effect analysis of actions and their consequences
D) Are potentially testable
Answer: A
Q2) Which of the following is NOT a reason that trade can benefit everyone?
A) Someone who owns a good of relatively little value can trade it for something they value more
B) Trade frees people from the need to produce everything themselves
C) Trade allows people to specialize in whatever they do best
D) Trade eliminates the problem of scarcity
Answer: D
Q3) In conducting positive economic analysis,economists apply
A) Subjective value judgments
B) The principle of individual sovereignty
C) Moral values
D) The scientific method
Answer: D
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Chapter 2: Supply and Demand3
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Q1) Suppose that an increase in oil prices causes the supply curve of gasoline to shift.Using a graph,illustrate the resulting changes in equilibrium price and quantity in both the short run and the long run.
Answer: The impact of a decrease in the supply of gasoline on the equilibrium price and quantity of gasoline depends upon the price elasticity of demand for gasoline.The demand for gasoline is much more inelastic in the short run than in the long run.Consumers have time to find substitutes (such as carpooling,more fuel efficient cars)in the long run.The situation is analyzed in the figure below.The market is originally in equilibrium at P1 and Q1.The decrease in the supply of gasoline is shown by the leftward shift of the supply curve from S to S'.In the short run,the relatively inelastic demand for gasoline is shown by the relatively steep slope of demand curve D<sub>sr</sub>.In the short run then,equilibrium price becomes P<sub>sr</sub> and equilibrium quantity is Q<sub>sr</sub>.In the long run,as consumers adjust to the higher price of gasoline,demand becomes more elastic.This is shown by the relatively flat slope of demand curve D<sub>lr</sub>.In the long run,the equilibrium price is P<sub>lr</sub> (which is less than P<sub>sr</sub>)and the equilibrium quantity is Q<sub>lr</sub> (which is less than Q<sub>sr</sub>).
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Chapter 3: Balancing Benefits and Costs
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Q1) Suppose that the slope of a line tangent to the total cost curve at point X is steeper than the slope of a line tangent to the total benefit curve at point X,then
A) Net benefit would be increased be reducing the amount of the activity
B) Net benefit would be decreased be reducing the amount of the activity
C) Net benefit would be increased be increasing the amount of the activity
D) Net benefit would be maximized
Answer: A
Q2) Marginal benefits and marginal costs
A) Capture the way total benefits and total costs change as the amount of an activity changes just a little bit
B) Are constant, regardless of the amount of an activity that is pursued
C) Tend to increase as a decision maker does more of an activity
D) Tend to increase as a decision maker does less of an activity
Answer: A
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Chapter 4: Principles and Preferences
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Q1) Which of the following is NOT a property of indifference curves?
A) Indifference curves are thin
B) Indifference curves may slope upward or downward
C) Indifference curves from the same family never cross
D) A consumer prefers to be on the indifference curve that is farthest from the origin
Q2) Which of the following statements regarding preferences and indifference curves is true?
A) When choosing between two consumption bundles, a consumer will always prefer the consumption bundle on the lower indifference curve
B) A consumer is indifferent between two consumption bundles that are on the same indifference curve
C) When choosing between two consumption bundles, a consumer will always prefer the consumption bundle that is farthest to the right on an indifference curve
D) When choosing between two consumption bundles, a consumer will always prefer the consumption bundle that is farthest to the left on an indifference curve
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Chapter 5: Constraints, Choices, and Demand
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Q1) Refer to Figure 5.3.Which of the following statements is false?
A) Points a, b and c all represent best choices for the consumer
B) Point a violates the No Overlap Rule
C) Point b satisfies the tangency requirement
D) Point c violates the No Overlap Rule
Q2) Suppose that an individual consumes just hamburgers and soft drinks.Using a carefully-labeled diagram,derive the price-consumption curve that would result from a decrease in the price of hamburgers.
Q3) Suppose a consumer buys pizza (P)and soft drinks (S).The price of pizza is $10,the price of soft drinks is $2 and the consumer's income is $100.If pizza is measured on the vertical axis and soft drinks are measured on the horizontal axis,then the consumer's budget constraint is given by
A) P = 10 - (1/5)S
B) S = 10 - (1/5)P
C) P = 100 - 5S
D) P = 10 - 5S
Q4) Suppose that steak is a normal good and vegetables are inferior goods.Using a carefully-labeled diagram,illustrate the income-consumption curve that would result from an increase in a consumer's income.
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Chapter 6: Rom Demand to Welfare
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Q1) Because individuals initially own more time than they consume and sell the difference to their employers,
A) The direction of the income effect is the opposite than it is for other goods
B) The direction of the income effect is the same as it is for other goods
C) There is no income effect resulting from a change in the individual's wage rate
D) The income effect of a wage change is relatively small
Q2) When prices are rising,
A) The Laspeyres index tends to overstate the increase in the cost of living because of the substitution bias
B) The Laspeyres index tends to understate the increase in the cost of living because of the substitution bias
C) The Laspeyres index tends to overstate the increase in the cost of living because of the compensating variation bias
D) The Laspeyres index tends to understate the increase in the cost of living because of the consumer preference bias
Q3) Define consumer surplus.Using a graph,explain the change in consumer surplus that would result from a decrease in the price of a gasoline.
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Chapter 7: Technology and Production
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Q1) ______ identifies all of the input combinations that efficiently produce a given amount of output.
A) A production function
B) An efficient production frontier
C) A production possibilities curve
D) An isoquant
Q2) A firm's _______ contains all combinations of inputs and outputs that the firm can achieve using efficient production methods.
A) Production possibilities set
B) Efficient production frontier
C) Production function
D) Production possibilities curve
Q3) Which of the following is the formula for the marginal product of labour?
A) F(L) - F(L - L)
B) F(L)/L
C) F(L)/ L
D) (F(L) - F(L - L))/ L
Q4) Define decreasing returns to scale,illustrating your definition with isoquants.What are some reasons why firms might experience decreasing returns to scale?
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Chapter 8: Cost
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Q1) A firm's ______ connects all the input combinations with the same cost.
A) Cost function
B) Isoquant
C) Budget constraint
D) Isocost line
Q2) As a firm with decreasing returns to scale technology increases its output,
A) It will experience diseconomies of scale and its average cost of production will rise
B) It will experience diseconomies of scale and its average cost of production will fall
C) It will experience economies of scale and its average cost of production will rise
D) It will experience economies of scale and its average cost of production will fall
Q3) Refer to Figure 8.1.Which graph best represents a total cost function?
A) A
B) B
C) C
D) D
Q4) Using a graph,explain the relationship between average cost and marginal cost.
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Chapter 9: Rofit Maximization
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Q1) The simplified profit maximization equation is
A) Profit = Revenue - Cost
B) Profit = Revenue + Cost
C) Profit = Revenue/Cost
D) Profit + Revenue x Cost
Q2) Refer to Figure 9.3.What is the smallest sales quantity that this firm will produce?
A) 0
B) Q1
C) Q2
D) Q3
Q3) Suppose a firm lowers its price in order to increase sales.The lower price will reduce the revenue the firm earns on the
A) Marginal units
B) Inframarginal units
C) Surplus units
D) Incremental units
Q4) Graphically illustrate the quantity rule and the shut down rule for a price-taking firm.
Q5) Using a graph,explain why the law of supply holds for a competitive firm.
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Chapter 10: Choices Involving Time
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Q1) If a project has an initial investment of $20,000 and consecutive yearly cash inflows of $5,000,$8000,$10,000 and $7,000,respectively,what is its payback period?
A) 2 years
B) 2.5 years
C) 2.7 years
D) 3 years
Q2) Refer to Figure 10.1.Which line represents earnings?
A) b
B) h
C) f + i
D) d
Q3) The current worth of a claim on future resources is called
A) Net present value
B) Future value
C) Present discounted value
D) Internal rate of return
Q4) Using a carefully-labeled graph,explain the Life Cycle Hypothesis.What are some of the implications of the Life Cycle Hypothesis?
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Chapter 11: Choices Involving Risk
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Q1) Given the information in problem 2 above,the probability that the Giants lose and it snows is
A) 21%
B) 26%
C) 95%
D) 25%
Q2) Refer to Figure f.A benefit function is plotted in Figure f.Point B represents the A) Risk premium of the consumption bundle
B) Expected utility of the consumption bundle
C) Certainty equivalent of the consumption bundle
D) Expected consumption
Q3) Explain why a risk averse individual will purchase full insure if a policy is actually fair,but only partially insure or not insure at all,if it is not.
Q4) Brandon's certainty equivalent given the information in problem 29 is
A) 45.75
B) 33.06
C) 30.5
D) 61
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Chapter 12: Choices Involving Strategy
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Q1) Refer to Figure c.What is the Nash equilibrium in problem 17?
A) Kate squeal, Alice squeal
B) Kate deny, Alice deny
C) Kate squeal, Alice deny
D) Kate deny, Alice squeal
Q2) Refer to Figure e.Brandon and Allie want to go on a date one summer evening.Allie is a Red Sox fan,while Brandon is a Mets fan.Both teams are playing that evening,but not against each other.Each would rather watch their team,neither can force the other to watch a particular game and each is willing to suffer through the other's game if it means time together.Figure e illustrates both Allie and Brandon's payoffs for each choice,with Allie's payoff in the southwest corner of each cell and Brandon's in the northwest corner.If Brandon watch the Mets,what is Allie's best response?
A) Watch the Red Sox
B) Watch the Mets
C) Neither; she is indifferent between the Red Sox and the Mets
D) To not consider Brandon's choice
Q3) Use the concepts of reputation and asymmetric information to explain why some faculty members become less productive after gaining tenure.
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Chapter 13: Behavioral Economics
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Q1) Behavioral economists
A) Rely primarily on data drawn from the real world
B) Rely primarily on experimental data
C) Avoid mathematical models of behavior, as they do not adequately describe real world actions
D) Rely only on experimental data
Q2) In the ultimatum game
A) One player (the proposal) offers to give the second player (the recipient) some share of a fixed prize; the recipient then decides whether to accept or reject the proposal
B) Is a single-stage game
C) One player (the proposal) gives the second player (the recipient) some share of a fixed prize; the recipient must keep the amount given
D) Was proposed by John Nash
Q3) Prospect theory was proposed by
A) John Nash
B) Milton Friedman and George Stigler
C) Amos Tversky and Daniel Kahneman
D) Gary Becker
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Chapter 14: Equilibrium and Efficiency
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Q1) Products are homogenous when
A) They are identical in the eyes of the purchasers
B) Some purchasers view the products as different
C) Suppliers can charge different prices for the same good
D) They are different in the eyes of the purchasers
Q2) Properties of long-run competitive equilibrium with free entry include
A) The equilibrium price must equal the minimum MC
B) Firms must earn positive profits
C) Active firms must produce at their efficient scale of production
D) All of these
Q3) Characteristics of a perfectly competitive market include
A) The presence of transaction costs
B) Homogenous products
C) Few sellers, each with a large market share
D) All of these
Q4) A deadweight loss
A) Is zero in a perfectly competitive market
B) Is a reduction in aggregate surplus below its maximum possible value
C) Depends upon the amount produced and consumed
D) All of these
16
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Chapter 15: Market Intervention
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Q1) A subsidy
A) Is a payment that decreases the amount that buyers pay for a good
B) Is a payment that increases the amount that buyers pay for a good
C) Is a payment that decreases the amount that sellers receive
D) Is a payment that decreases the amount that sellers sell for a good
Q2) When the government implements a price support program
A) It may end up buying a lot of the good, for which it has little or no use
B) The goal is to increase the market price of the good
C) The deadweight loss created can be larger than that created by a price floor
D) All of these
Q3) A voluntary production reduction program
A) Offers firms incentives to reduce their production voluntarily
B) Forces firms to reduce their production
C) Offers firms incentives to increase their production voluntarily
D) Forces firms to increase their production
Q4) A subsidy
A) Is a payment that increases the amount that buyers pay for a good
B) Is a payment that reduces the amount that buyers pay for a good
C) Is a payment that reduces the amount that sellers receive
D) A and C
Page 17
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Chapter 16: General Equilibrium, Efficiency, and Equity
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Q1) A market-clearing curve for a good
A) Shows the quantities supplied and demanded for a particular product
B) Shows the combinations of prices, both for that good and for other related goods, that bring supply and demand for the good into balance
C) Shows the quantities supplied and demanded for all goods
D) Illustrates equilibrium in a particular market
Q2) An endowment
A) Is the bundle of goods an individual starts out with before trading
B) Is the bundle of goods an individual ends up with after trading
C) Is the bundle of goods an individual inherits
D) Is the bundle of goods and individual donates
Q3) The modern treatment of general equilibrium was pioneered by
A) Kenneth Arrow
B) Gerard Debreu
C) Leon Walras
D) Kenneth Arrow and Gerard Debreu
Q4) Discuss the second welfare theorem.How can societies use competitive markets to achieve both efficiency and equity?
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Chapter 17: Monopoly
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Q1) A firm's Lerner Index
A) Is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price
B) Is the amount by which its marginal cost exceeds its average cost
C) Is the amount by which its average cost exceeds its marginal cost
D) Is the value of its profit
Q2) The pass through rate
A) Is always greater than one in a perfectly competitive market
B) Is never greater than one in a perfectly competitive market
C) Is always greater than one for a monopolist
D) Is always less than one for a monopolist
Q3) The deadweight loss from monopoly pricing is
A) The amount by which aggregate surplus falls short of its minimum possible value, which is attained in a perfectly competitive market
B) The amount by which consumer surplus exceeds producer surplus
C) The amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market
D) The amount by which producer surplus exceeds consumer surplus
Q4) Explain the difference between a monopoly and a monophony.
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Chapter 18: Pricing Policies
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Q1) A firm engages in price discrimination when it
A) Charges different prices for different units of different goods
B) Charges same prices for different units of the same good
C) Charges a lower price for units for which the willingness to pay is high than for those units for which the willingness to pay is low
D) Charges different prices for different units of the same good
Q2) With a two-part tariff
A) Consumers simply pay a fixed fee if they buy anything at all
B) Consumers pay a fixed fee if they buy anything at all, plus a separate per-unit price for each unit they buy
C) Consumers pay a fixed fee if they buy anything at all, plus an annual fee for the right to purchase anything
D) Consumers simply pay a fee for the right to buy anything
Q3) Explain bundling and mixed bundling and the benefits to a multi product monopolist of such packaging schemes.
Q4) Discuss the differences between perfect and imperfect price discrimination and the benefits of each to a monopolist.
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Chapter 19: Oligopoly
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Q1) The Cournot model of oligopoly
A) Firms produce differentiated products and set their prices simultaneously
B) Firms produce homogenous products and set their prices simultaneously
C) Firms choose how much to produce simultaneously and the price clears the market given the total quantity produced
D) Firms choose how much to produce and the price to charge simultaneously
Q2) In an oligopolistic market
A) The more elastic the demand, the greater the markup
B) The larger the number of firms, the greater the markup
C) The less elastic the demand, the greater the markup
D) B and C
Q3) A market with two sellers is called a
A) Monopoly
B) Perfectly competitive market
C) Duopoly
D) Triopoly
Q4) Define the Bertrand model and its assumptions.Explain why the model predicts the perfectly competitive outcome despite the number of sellers.Discuss the limitations of the model.
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Chapter 20: Externalities and Public Goods
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Q1) A positive externality is created if
A) An action harms someone not involved in the market transaction
B) An action benefits someone not involved in the market transaction
C) Neither helps nor hurts someone not involved in the market transaction
D) An action harms someone involved in the market transaction
Q2) The marginal social cost of production is
A) The sum of the total cost to the producer and the total external cost
B) The sum of the marginal cost to the producer and the total external cost
C) The sum of the total cost to the producer and the marginal external cost
D) The sum of the marginal cost to the producer and the marginal external cost
Q3) Common property resources include
A) Movies
B) Fast food
C) Oceans
D) Professional baseball games
Q4) A public good
A) Is a good that is nonrival
B) Is a good that is nonexcludable
C) Is often provided by the government
D) All of these
Page 22
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