Intermediate Microeconomic Theory Practice
Exam
Course Introduction
Intermediate Microeconomic Theory builds upon foundational economic principles to explore the behavior of individuals, firms, and markets in greater depth. The course covers the theory of consumer and producer behavior, market equilibrium, and the effects of government policy on market outcomes. Students analyze concepts such as utility maximization, cost minimization, and profit optimization under various market structures, including perfect competition, monopoly, and oligopoly. Emphasis is placed on formal modeling, mathematical methods, and real-world applications, providing students with the tools to systematically evaluate economic decision-making and resource allocation.
Recommended Textbook
Microeconomics 9th Edition by William Boyes
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Page 2
Chapter 1: Economics: The World Around You
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Sample Questions
Q1) People are compelled to make a choice because of the lack of time and money to buy everything they want.
A)True
B)False
Answer: True
Q2) Which of the following categories of educated workforce in the U.S.,aged between 25 and 64,usually receive the highest income?
A)College graduates
B)Individuals with professional degrees
C)Individuals with a master degree
D)College drop-outs
E)High school students
Answer: B
Q3) Microeconomics is concerned primarily with how individuals make their economic decisions.
A)True
B)False
Answer: True
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Chapter 2: Choice, opportunity Costs, and Specialization
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Sample Questions
Q1) Refer to Table 2.1.Identify the correct statement.
A)This economy can produce 100 units of A and 20 units of B.
B)The opportunity cost of producing more of A decreases as A increases.
C)The opportunity cost of producing more of B decreases as B increases.
D)This economy can produce 70 units of A and 40 units of B.
E)If this economy fully and efficiently employs all its resources,it can produce 100 units of A and 80 units of B.
Answer: D
Q2) A point outside the production possibilities curve [PPC]:
A)represents inefficient use of resources.
B)may be due to unemployment.
C)is attainable if all resources are used efficiently.
D)represents more resources than are currently available.
E)will never be attainable,even if the quantity of resources increases.
Answer: D
Q3) There is no cost of using your own savings in your business.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Markets, Demand and Supply, and the Price System
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Sample Questions
Q1) The market demand curve is derived by summing individual demand curves horizontally.
A)True
B)False
Answer: True
Q2) Refer to Table 3.3.Which of the following would occur in the market for bread if the market price exceeded the equilibrium price by $1?
A)The quantity of bread demanded in the market would increase
B)The bread market would face a surplus of 36 loaves of bread
C)The supply of bread in the market would increase
D)The bread market would face a shortage of 72 loaves of bread
E)The demand for bread in the market would decrease
Answer: B
Q3) Empirical evidence suggests that more digital cameras are being sold today than one year ago,and the selling price has decreased.The probable reason for this could have been an increase in supply.
A)True
B)False
Answer: True
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Chapter 4: The Market System and the Private and Public Sector
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Sample Questions
Q1) If total U.S.trade consists of $10 billion in electronics imports from Japan and $9 billion in automobile exports to Germany,then the U.S.net export account will be negative.
A)True
B)False
Q2) A trade deficit occurs when:
A)a country imposes a price floor.
B)a country's imports exceed its exports.
C)a country imposes a price ceiling.
D)a country's exports exceed its imports.
E)when the domestic product market is in disequilibrium.
Q3) Which of the following correctly describes the market-clearing price?
A)It is the price which minimizes the aggregate surplus in the market.
B)It is the same as the equilibrium price.
C)It is the price at which the maximum quantity of the good is sold.
D)It is the minimum price at which the product must be sold for the firm to remain in business.
E)It is the price at which firms have to exit the market.
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Page 6
Chapter 5: Elasticity: Demand and Supply
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Sample Questions
Q1) The social security tax,like any other tax,is shared by employers and employees based on elasticities of demand and supply.If the wage elasticity of demand for labor is zero and the wage elasticity of supply for labor is positive:
A)most of the tax will be paid by the employer.
B)most of the tax will be paid by the employee.
C)all of the tax will be paid by the employer.
D)all of the tax will be paid by the employee.
E)the tax is split evenly between the employer and employee.
Q2) Acme Tools manufactures anvils,a forging tool.When the price of anvils was increased from $7 to $13,Acme Tools was willing and able to increase production from 1 to 4 units per day.Using the midpoint formula,what is Acme's price elasticity of supply for anvils?
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Page 7
Chapter 6: Consumer Choice
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Sample Questions
Q1) When economists describe the theory of consumer choice,they
A)portray people as simple and methodical with perfectly predictable patterns of behavior.
B)assert that consumers decide which goods and services give them the greatest utility within their limited incomes.
C)point out that consumers rarely consider utility in their purchase decisions; they look at other factors like convenience,peer behavior,and price.
D)assert that the retail price is the only variable consumers really consider in making their purchasing decisions.
E)admit that consumer behavior is random and there is no credible economic theory to explain the phenomenon.
Q2) Suppose a friend gives you two pieces of gum,and you decide to have one piece now and save the other for tomorrow.You do this because:
A)the total utility you get from the two pieces of gum will be higher tomorrow.
B)the marginal utility you get from the second piece will be higher tomorrow.
C)the marginal utility you get from the second piece will be higher today.
D)the marginal utility you get from the first piece will be less today.
E)the total utility you get from the two pieces will be less tomorrow.
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Chapter 7: Supply: The Costs of Doing Business
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Sample Questions
Q1) The marginal cost curve intersects the average total cost curve at the firm's most efficient point of production.
A)True
B)False
Q2) In the short run when output is zero,total cost is:
A)equal to total variable cost.
B)greater than total fixed cost.
C)equal to total fixed cost.
D)less than total fixed cost.
E)less than total variable cost.
Q3) The difference between average total cost and average variable cost decreases with an increase in output.
A)True
B)False
Q4) When more and more doses of fertilizers are added to a fixed plot of agricultural land,the crop yield initially declines but eventually rises.
A)True
B)False
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9
Chapter 8: Profit Maximization
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Sample Questions
Q1) Suppose that at a given level of output,a perfectly competitive firm charges a price of $12 and has average total costs of $10.If its economic profit is $20,000,then it must be producing:
A)40,000 units of output.
B)20,000 units of output.
C)30,000 units of output.
D)10,000 units of output.
E)50,000 units of output.
Q2) Entry of new firms to the industry lowers the economic profit of the existing firms.
A)True
B)False
Q3) A(n) ____ may offer products that are either differentiated or identical.
A)monopolistically competitive firm
B)monopolist
C)oligopolistic firm
D)perfectly competitive firm
E)monopsonist
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Chapter 9: Perfect Competition
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Sample Questions
Q1) If at the profit maximizing level of output,the AR curve lies below the ATC curve in the short run,the firm is earning positive economic profit.
A)True
B)False
Q2) The theory of the long run in perfect competition helps to provide a rationale for the belief in a limited role for government in society.
A)True
B)False
Q3) A firm's total revenue is $400 for 8 units of output,$600 for 12 units of output,and $1,100 for 22 units of output.Evidently this firm is operating in a(n):
A)perfectly competitive market.
B)monopolistic market.
C)duopolistic market.
D)monopolistically competitive market.
E)oligopolistic market.
Q4) A perfectly competitive firm faces the downward sloping market demand curve. A)True
B)False
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11
Chapter 10: Monopoly
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Sample Questions
Q1) A monopolist's supply curve cannot be derived directly from its marginal cost curve as in the case of a competitive firm.
A)True
B)False
Q2) A local monopoly is a firm that:
A)is the sole supplier of a good without substitutes in a specific geographic area.
B)is one of the suppliers of a good in a specific geographic area.
C)supplies to the consumers within only one country.
D)produces to meet the requirement of only one consumer.
E)supplies its product to customers only in one city.
Q3) Which of the following is true of a firm that can successfully practice price discrimination?
A)Its total revenue is often reduced.
B)It appropriates a part of the consumer surplus.
C)It has no way of distinguishing between types of customers.
D)It has no market power in the industry.
E)It must be a perfectly competitive firm.
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12
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The short-run equilibrium position for a firm in monopolistic competition is the point at which the firm's marginal-cost curve intersects its marginal-revenue curve from above.
A)True
B)False
Q2) Consumers are willing to pay a higher price for a product with a brand name as opposed to a generic product because:
A)a brand name provides a signal about a product's quality and reliability.
B)they are willing to pay more for the privilege of watching the firm's commercials.
C)a product with a brand name is always of higher quality.
D)consumers maximize utility by purchasing the most expensive products.
E)consumers are irrational.
Q3) Which of the following statements about collusion istrue?
A)Collusion is legal in the United States.
B)Its overriding goal is to enhance competition and thereby increase profits.
C)The greater the number of firms,the less difficult it is to maintain.
D)Collusion never results in benefits for the participants.
E)Collusion may help to increase the profits of the participating firms.
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Chapter 12: Antitrust and Regulation
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Sample Questions
Q1) Consider a market consisting of seven firms with market shares of 40,20,10,10,8,7,and 5 percent,respectively.Which of the following statements is true?
A)The four-firm concentration ratio would be 0.03.
B)The Herfindahl index would be 1,000.
C)The Herfindahl index would be 2,228.
D)The Herfindahl index would be 1,500.
E)The Herfindahl index would be 2,338.
Q2) If social regulation increases a firm's fixed and variable costs:
A)then both marginal cost and average total cost will increase,and the firm will produce more.
B)then both marginal cost and avetage total cost will increase,and the firm will produce less.
C)then both marginal cost and average total cost will decrease,and profits will increase. D)Marginal cost will increase,average total cost will be constant,and price will decline. E)both price and quantity produced will fall.
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14
Chapter 13: Market Failures, Government Failures, and Rent
Seeking
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Sample Questions
Q1) When there exists a negative externality in case of a particular good and that is not reflected in the price:
A)too little of that good is produced and consumed.
B)too much of that good is produced and consumed.
C)nothing of that is either produced or consumed.
D)the government completely prohibits the production of such goods.
E)the resources are allocated to their highest-valued activity.
Q2) A pollution tax has the effect of reducing the costs of production for a firm,leading to a rightward shift of the supply curve.
A)True
B)False
Q3) If education has positive externalities:
A)the private market will provide an efficient allocation of resources.
B)the private costs of production will exceed the social costs.
C)the government can help to bring about a more efficient allocation through subsidies.
D)the only benefits of consumption accrue to the consumers themselves.
E)the government can help to bring about a more efficient allocation by levying education cess.
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Chapter 14: Resource Markets
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Sample Questions
Q1) If the elasticity of supply of a resource is greater than zero but less than infinity,its income will comprise of:
A)only economic rent.
B)only transfer earnings.
C)salaries and traveling allowances.
D)both economic rent and transfer earnings.
E)salaries,traveling allowances,as well as other incentives.
Q2) A firm under any market structure maximizes profits at a point where:
A)marginal revenue product is greater than marginal factor cost.
B)marginal revenue product is equal to marginal factor cost.
C)marginal revenue product is equal to zero.
D)marginal factor cost is equal to zero.
E)marginal revenue product is less than marginal factor cost.
Q3) The negative slope of the demand curve of a resource indicates an inverse relationship between the price of the resource and the quantity demanded.
A)True
B)False
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Chapter 15: The Labor Market
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Sample Questions
Q1) With illegal immigration the unskilled labor supply curve:
A)shifts to the left.
B)becomes perfectly inelastic.
C)becomes perfectly elastic.
D)shifts to the right.
E)becomes non-existent.
Q2) Which of the following is a reason that some economists do not agree with the concept of a labor-leisure tradeoff?
A)Wages are paid in dollars and leisure is measured in time,hence there is no way to compare the two.
B)On a day-to-day basis,most jobs do not have the flexibility to allow people to weigh the benefits and costs to determine how much they should work that day.
C)In the long-run,the supply of labor hours is perfectly inelastic.
D)An increase in the wage rate always leads to an increase in the supply of labor hours.
E)Some people do not work at all,so there is no labor-leisure tradeoff for those individuals.
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Chapter 16: Capital Markets
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Sample Questions
Q1) Why are bonds less risky than stocks?
A)Dividend given on shares are usually less than the coupon-rate on bonds.
B)Bonds can be issued only by the government whereas shares are issued by private firms.
C)Bondholders have a claim on the assets of the firm whereas the shareholders do not.
D)Shareholders are entitled to a share of company's earnings.
E)The higher the profit of the firm,the greater the share of the bondholders.
Q2) A bubble or panic generally occurs in the stock market because of:
A)upswings in the business cycle.
B)expansionary monetary policies undertaken by the government.
C)irrational,or abnormal forecasts,or market valuations.
D)an increase in the profitability of the firms.
E)deliberate government actions to control inflation.
Q3) The amount that a risk averse person requires to take on risk is called:
A)risk arbitrage.
B)risk bonus.
C)risk premium.
D)risk capital.
E)risk rate.
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Page 18
Chapter 17: The Land Market and Natural Resources
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Sample Questions
Q1) Which of the following is a nonrenewable source of energy?
A)Corn
B)Ethanol
C)Petroleum
D)Bagasse
E)Biomass
Q2) In the market for hardwood,everything else held constant,if the rate of interest increases:
A)the price of the hardwood will fall today.
B)the lumberjacks will harvest fewer trees today.
C)prices of boats and furniture will increase in the present period.
D)the lumberjacks will harvest all the trees leaving nothing for the future.
E)the price of the hardwood will fall in the future.
Q3) The supply of land being fixed,the earnings from land are called transfer earnings.
A)True
B)False
Q4) Privatization of common property leads to overexploitation of natural resources.
A)True
B)False
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Chapter 18: Aging, Social Security and Health Care
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Sample Questions
Q1) The existence of new drugs reduces the demand for drugs as they are highly expensive.
A)True
B)False
Q2) The American Medical Association restricts advertising by the physicians,thus it can be partly held responsible for the inability of consumers to obtain complete information about prices or professional quality of physicians.
A)True
B)False
Q3) The American Medical Association helps increase:
A)price competition among local physicians in the same area.
B)the ability of each physician to act as a local monopoly.
C)freedom of physicians to advertise.
D)consumers' ability to obtain complete information about prices or professional quality.
E)the ability of new,entering physicians to compete with established ones by charging lower prices.
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Chapter 19: Income Distribution,Poverty and Government Policy
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Sample Questions
Q1) _____ are the primary population group with poverty-level incomes in the USA.
A)Single-income households
B)Households headed by males
C)College graduates
D)People who do not have high school education
E)Retired individuals
Q2) The world Lorenz curve coincides with the line of income equality because the average income of the different countries are more or less equal.
A)True
B)False
Q3) According to Figure 19.1,which of the following is true?
A)Line OXB is the line of perfect income inequality.
B)Curve OYB represents a less equal distribution of income than curve OZB.
C)Line AB represents a society in which wealth is shared equally among individuals.
D)Line OXB is the line of perfect income equality.
E)Line AB represents a society in which 50 percent of the population receives all the income.
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Page 21
Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) The theory of comparative advantage is based on:
A)absolute opportunity costs.
B)relative opportunity costs.
C)total costs of production.
D)total costs,including transportation costs.
E)a comparison of marginal cost with average variable costs.
Q2) Refer to Table 20.4.Producing 1 more crate of eggs would require Arkansas to:
A)give up one-fifth of a ton of potatoes.
B)give up 10 tons of potatoes.
C)give up 5 tons of potatoes.
D)give up one-tenth of a ton of potatoes.
E)2 tons of potatoes.
Q3) Which of the following looks at the demand side of the market to explain some of the observed international trade patterns?
A)The theory of consumer preferences
B)The factor abundance theory
C)The product life cycle theory
D)The Ricardian model
E)The human skills approach
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Chapter 21: International Trade Restrictions
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Sample Questions
Q1) Which of the following statements about international trade restrictions is true?
A)They ensure that only efficient producers survive.
B)They ensure that countries specialize only in those products that they can produce most efficiently.
C)In the majority of cases,they harm domestic consumers.
D)They typically benefit foreign producers at the expense of domestic consumers.
E)They ensure that higher-quality goods are provided at lower prices.
Q2) Generally speaking,protection from foreign competition benefits:
A)both domestic producers and foreign producers.
B)both domestic consumers and foreign consumers
C)domestic consumers and foreign consumers.
D)neither domestic producers nor foreign producers.
E)domestic producers at the expense of domestic consumers.
Q3) One danger associated with calls for fairness based on reciprocity is that,calls for fair trade may be invoked in cases where,foreign restrictions on U.S.imports do not actually exist.
A)True
B)False
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) The gold standard ended with the:
A)rise of Napoleon to power.
B)American Declaration of Independence.
C)outbreak of World War I.
D)first Arab oil embargo.
E)presidency of Richard Nixon.
Q2) When an exchange rate is established as a fixed peg,active intervention may be required to maintain the target-pegged rate.
A)True
B)False
Q3) The primary function of the World Bank is to:
A)lend money to the World Trade Organization.
B)provide loans to countries experiencing huge budget deficit.
C)finance economic development in poor countries.
D)assist countries experiencing balance of payments deficits.
E)finance the fiscal stabilization program of the U.S.government.
Q4) Countries that maintain a constant gold value for their currencies are said to be on a gold standard.
A)True
B)False
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