Intermediate Microeconomics
Exam Preparation Guide
Course Introduction
Intermediate Microeconomics delves into the theoretical foundations of how individuals and firms make decisions regarding the allocation of scarce resources. This course explores market structures, consumer and producer theory, the behavior of firms under various competitive environments, and the mechanisms of price determination. Emphasis is placed on understanding concepts such as utility maximization, cost minimization, equilibrium analysis, and the impact of government intervention on markets. Through mathematical modeling and real-world examples, students develop critical analytical skills to interpret and predict market outcomes in diverse economic settings.
Recommended Textbook
Microeconomics Theory and Applications 11th Edition by Edgar
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Page 2
K. Browning
Chapter 1: An Introduction to Microeconomics
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Q1) At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:
A)purchase less lobster and hamburger in equal amounts.
B)purchase more lobster and fewer hamburgers.
C)purchase less lobster and more hamburgers.
D)purchase more lobster and hamburger in equal amounts.
Answer: C
Q2) A consumer attains equilibrium by _____.
A)consuming all goods to the point where the marginal utility of each are equal
B)consuming all goods to the point where the total utility of each are equal
C)allocating income such that the total amount spent on each good is equal
D)allocating income such that the marginal utility of the last dollar spent on each good is the same
Answer: D
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Chapter 2: Supply and Demand
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Sample Questions
Q1) The demand curve for soda is represented by the following equation: Q=12-2P.If at the current market price the elasticity of demand for soda is -2,what is the market price?
Answer: Using the information given,we can fill in part of the point elasticity formula and solve for P. \(\eta = \frac { d Q } { d P } \cdot \frac { P } { Q }\) \(\eta = - 2\) and \(\frac { d Q } { d P } = - 2\) .Lastly,Q is given as 12-2P.Therefore: \(- 2 = - 2 \left( \frac { P } { 12 - 2 P } \right)\) and P=4
Q2) Corn farmers in a country are colluding to reduce the market supply of corn.This will successfully raise the farmers' incomes only if the demand for corn is:
A)elastic.
B)inelastic.
C)unit elastic.
D)infinitely-elastic.
Answer: B
Q3) Each row and column heading describes a shock to a market initially in equilibrium.Fill in the table indicating whether the new equilibrium price and quantity will increase,decrease,or not change.
Answer: 11ea77e2_d721_9d90_91bf_f57ae3dcd3c2_TB1825_00
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Chapter 3: The Theory of Consumer Choice
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Sample Questions
Q1) Which of the following is generally considered to be a microeconomic question?
A)The relationship between the money supply and nominal GDP
B)The responsiveness of aggregate demand to change in government expenditure
C)The relationship between productivity of workers and wages received by them
D)The relationship between inflation and unemployment
Answer: C
Q2) Differences in the _____ of resources in the production of various commodities explain the per-unit opportunity cost associated with a concave production possibility frontier.
A)cost
B)relative productivity
C)availability
D)supply elasticity
Answer: B
Q3) Which of the following can be categorized as a sunk cost of a firm?
A)The retirement benefit provided to the workers
B)The investment on a research project that failed to take-off
C)The higher wages paid to workers for working extra hours
D)The value of the closing stock of inventory
Answer: B
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Chapter 4: Individual and Market Demand
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Q1) Suppose there are 20 identical consumers in a market,each with demand curve given by P = 100 - 4Q<sub>i</sub>,where P is price per unit and Q<sub>i</sub> is the number of units demanded by the i<sup>th</sup> consumer.What is the equation for the market demand curve?
Q2) If the price-consumption curve for X is upward-sloping,we can say that:
A)the price elasticity of demand for X is greater than one.
B)the price elasticity of demand for X is less than one.
C)X is an inferior good.
D)the price elasticity of demand for X is equal to one.
Q3) Mariana has a preference for exquisite handcrafted jade ornaments imported from Japan.She displays her possessions at social gatherings and feels proud when her friends compliment her on the same.When approached by her friends for the source of these ornaments she indirectly refuses to reveal it by diverting the conversation to other things.She feels that once her friends start purchasing similar ornaments the exclusivity of her collection will be lost.Explain Mariana's behavior within the context of the demand theory.
Q4) A consumer's demand function for a good Q is of the form P = 20 - 2Q.Derive the consumer's price elasticity of demand for this good when price decreases to $6 from $8.What can be inferred about the shape of the consumer's price consumption curve?
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Chapter 5: Using Consumer Choice Theory
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Sample Questions
Q1) Expected return is defined as _____.
A)the summed value of each possible rate of return discounted for inflation
B)the average probability of profit on a fair investment
C)the expected probability of high returns on an investment
D)the summed value of each possible rate of return weighted by its probability
Q2) Consider an individual for whom consumption in two periods is a normal good.Other things remaining the same,if the interest rate increases,then:
A)he is worse off.
B)he is better off.
C)he will spend more in each period.
D)he will choose to save more.
Q3) Suppose a local government decides to increase taxes on its residents and use that money to provide meals to each individual in the community.The scheme provides each individual with a small frozen dinner.Compared to a voucher system that allows individuals to purchase meals at a private restaurant,the frozen dinner scheme:
A)will decrease both quantity and quality of meals consumed.
B)will not affect the quality or quantity of meals.
C)will give individuals greater variety and choice of meals.
D)will increase both quantity and quality of meals consumed.
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Chapter 6: Exchange, Efficiency, and Prices
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Sample Questions
Q1) In Table 6.1,if initially Jane has basket B and Bill has basket D,then we can conclude that a mutually beneficial trade _____.
A)does not exist
B)requires that Jane sell Pizza and Bill sell Coke
C)requires that Jane sell either Coke or Pizza
D)requires that Jane sell Coke and Bill sell Pizza
Q2) Which of the following is the best example of a price taker market?
A)Gasoline retailers in a large suburban area
B)Residential real estate in a rural area
C)Passenger automobiles
D)Computer games
Q3) If Frank's and Jan's indifference curves intersect at the endowment point A,then: A)A is on the contract curve.
B)trade will make one of them better off while making the other one worse off.
C)both indifference curves would cross the contract curve before they intersected again.
D)A can be on either Frank's or Jan's contract curve but not both.
Q4) (
A)What is meant by Pareto efficiency?
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Chapter 7: Production
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Sample Questions
Q1) A carpenter hammers nails each day at work.During the first hour she can hammer 120 nails,the second hour 100 nails,the third hour 90 nails,the fourth hour 60 nails,and the fifth hour 10 nails.The total product of five hours of work is _____ nails.
A)10
B)380
C)320
D)60
Q2) The slope of a ray from the origin to the total product curve measures _____.
A)the marginal rate of technical substitution
B)the marginal product of the variable factor
C)the average product of the variable factor
D)the maximum output
Q3) The marginal rate of technical substitution:
A)equals the marginal product of capital times the marginal product of labor.
B)measures the rate at which marginal product declines as inputs are increased.
C)measures the degree to which one input can be substituted for another,output held constant.
D)is the horizontal distance between two isoquants.
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Chapter 8: The Cost of Production
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Sample Questions
Q1) Long-run costs of production are generally lower than the short run costs because:
A)all inputs are fixed in the long run.
B)firms cannot change their scale of production in the long run.
C)there is greater flexibility in input usage in the long run.
D)there is no scope for learning by doing in the long run.
Q2) The expansion path identifies:
A)the least costly combination of inputs required to produce various levels of output.
B)the firm's demand curves for the inputs.
C)the various combinations of inputs that can be used to produce a given level of output.
D)the least-cost combination of outputs.
Q3) Refer to Figure 8-1.The total fixed costs of the firm are identified by the distance: A)RS.
B)ST.
C)BR.
D)BT.
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Chapter 9: Profit Maximization in Perfectly Competitive Markets
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Sample Questions
Q1) In the short-run,if the price falls,the firm will respond by:
A)liquidating its assets and shutting down.
B)producing at the output level where average variable cost is equal to marginal revenue.
C)reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost.
D)increasing its output in order to sell higher quantities.
Q2) If market price is below a competitive firm's average total cost,the firm should:
A)shut down only if the price is above its average variable cost.
B)shut down immediately.
C)remain open as long as its average revenue is greater than its average variable cost.
D)expand output in the short-run and expand its production capacity.
Q3) At the profit maximizing level of output in a competitive industry,the firm is:
A)making economic profit.
B)losing money on each unit sold.
C)making zero accounting profit.
D)making abnormal profits
Q4) Derive the first-order and second-order conditions for perfect competition.
Page 11
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Chapter 10: Using the Competitive Model
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Sample Questions
Q1) Issuing a fixed number of licenses to operate a taxicab in a city would mean that the number of:
A)cabs and fares are both above the efficient level.
B)cabs is less than the efficient quantity and fares are above free-market levels.
C)cabs is above the efficient level and fares are depressed below the free-market level.
D)cabs and fares are both below the efficient level.
Q2) Explain how entry restrictions imposed on taxis by a city affects fares and profits of licensed taxi owners as demand increases over time.
Q3) The U.S.airline industry,prior to deregulation,was characterized by _____.
A)excessive profits
B)a high level of efficiency
C)excess demand
D)nonprice competition
Q4) What would be the welfare effect of a per-unit tax in the following markets?
(
A)The market for cigarettes
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Chapter 11: Monopoly
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Q1) Which of the following is true for a monopoly firm?
A)The marginal revenue curve is the same as the average revenue curve.
B)The demand curve is a declining average revenue curve.
C)The demand curve,average revenue curve,and marginal revenue curve are the same.
D)The total revenue curve is the same as the demand curve.
Q2) The markup of price over marginal cost for a monopolist is _____.
A)independent of the price elasticity of demand
B)inversely related to the price elasticity of demand
C)the same as the price elasticity of demand
D)the same as the price elasticity of supply
Q3) Which of the following is true of a firm in a monopoly market?
A)The price charged by the monopolist is less than the marginal cost of production.
B)The equilibrium output in a monopoly market is smaller compared to a competitive market.
C)There is a deadweight loss in a monopoly market.
D)In a monopoly market long-run economic profits are zero.
Q4) Explain why a profit-maximizing monopolist will always sell at a price where demand is elastic.
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Chapter 12: Product Pricing With Monopoly Power
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Q1) Park and Fly,a chain that operates off-terminal parking lots near major airports in several U.S.cities,has a "frequent-parker" program that offers customers a week's free parking after they have paid for 35 days.Which of the following types of price discrimination is the company practicing?
A)Perfect price discrimination
B)Predatory pricing
C)Third-degree price discrimination
D)Block pricing
Q2) A perfectly price-discriminating monopolist:
A)restricts output more than an ordinary monopolist does.
B)sells the last unit of output where price equals marginal cost.
C)charges all consumers the same price but sells different quantities to each.
D)obtains less producer surplus than does an non-price discriminating monopolist.
Q3) We would expect price discrimination to be most successful in the market for: A)haircuts.
B)DVD's.
C)cars.
D)jeans.
Q4) Why is it difficult to implement first-degree price discrimination?
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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)relatively elastic compared to a monopoly
B)perfectly elastic at the equilibrium price
C)relatively elastic compared to a perfectly competitive firm
D)perfectly inelastic at the equilibrium output
Q2) Using a graph,show the equilibrium price and output for a perfectly competitive firm.If all the firms in the industry colluded to increase their profits,how would the equilibrium change for each firm? Assume that each firm produces an equal share of the industry output.
Q3) From the shape of the monopolistically competitive firm's demand curve,you can imply that:
A)the firm has some degree of market power.
B)the firm sells a homogeneous good.
C)the firm's product has no substitutes.
D)the firm's level of output is efficient.
Q4) Assume that Ikea and Pottery Barn are two new firms that are planning to enter the furniture market.They face the inverse market demand curve P = 60 - Q.Given that both firms have zero marginal costs,show that Ikea's profit is lower in the Cournot model than in the Stackelberg model.
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Chapter 14: Game Theory and the Economics of Information
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Q1) Explain how advertising,when undertaken by all competing firms,actually reduces the market power of the firms.
Q2) 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
Q3) To avoid getting a "lemon" house,buyers hire inspectors because:
A)the marginal benefit of getting a "lemon" house exceeds the inspector's fee.
B)the marginal cost of getting a "lemon" house is lower than the inspector's fee.
C)the marginal cost of not getting a "lemon" house is less than the inspector's fee.
D)the marginal benefit of not getting a "lemon" house exceeds the inspector's fee.
Q4) Which of the following is true of a prisoner's dilemma game?
A)It does not have an equilibrium.
B)It has a dominant-strategy equilibrium.
C)It does not have a Nash equilibrium.
D)It ensures better payoffs to the players compared to other games.
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Chapter 15: Using Noncompetitive Market Models
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Q1) Increasing competition in a market characterized by natural monopoly would:
A)increase output and lower prices,increasing efficiency in production.
B)result in an inefficient outcome as the real cost of production will be too high.
C)increase the number of units sold as well as the profits of the monopolist.
D)lower the average cost of production for all firms in the market.
Q2) Which of the following is true of monopolies and their incentive to innovate?
A)Monopolies have the incentive to suppress innovation in order to sustain abnormal profits.
B)Monopolies do not have the incentive to innovate,even in the short run,unless they receive patents for their invention.
C)Monopolies do not have the incentive to innovate because they will continue to earn zero economic profits even with innovation.
D)Monopoly firms have the incentive to innovate and introduce new products in order to expand their profit.
Q3) What is a natural monopoly? Draw a diagram to illustrate the profit-maximizing output of a natural monopoly.
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) For a firm that is perfectly competitive in the output market but a monopsonist in a particular input market:
A)the price of the final output will exceed the firm's marginal cost of producing output.
B)the price of the final output will be lower than the wage rate.
C)the wage rate will be less than the average cost of labor.
D)the wage rate will be less than the marginal cost of labor.
Q2) Refer to Figure 16-2.When the monopsonist is in equilibrium,the wage rate paid to labor is _____.
A)P<sub>1</sub>
B)P<sub>2</sub>
C)P<sub>3</sub>
D)0
Q3) The marginal value product of labor is equal to:
A)the marginal product of labor multiplied by the per-unit price of labor.
B)the marginal product of labor multiplied by the per-unit price of output.
C)the average product of labor multiplied by the per-unit price of capital.
D)the average product of labor multiplied by the per-unit price of output.
Q4) Using calculus,show the profit-maximizing employment of inputs for a perfectly competitive firm.
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Chapter 17: Wages, Rent, Interest, and Profit
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Q1) Refer to Figure 17-1.If the number of leisure hours is OL<sub>3</sub> after a change in the wage rate,the individual's supply curve of labor will be _____.
A)backward bending
B)vertical
C)upward-sloping
D)relatively elastic
Q2) In equilibrium,interest rates on different assets will differ for all of the following reasons,except for differences in _____.
A)the risks associated with the asset
B)the asset prices
C)the duration of the loan
D)the tax treatment of the investment
Q3) In the market for loanable funds,an increase in the interest rate leads to _____ if the income effect dominates the substitution effect.
A)a decrease in demand
B)an increase in supply
C)an increase in demand
D)a decrease in supply
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Chapter 18: Using Input Market Analysis
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Q1) When the supply curve of labor is perfectly inelastic the burden of a social security tax is:
A)borne partly by the employers and partly by employees.
B)borne partly by the employers only if the demand for labor is elastic.
C)entirely borne by the employees.
D)entirely borne by the employers.
Q2) Mention some of the factors which hinder input buyer's cartel.
Q3) What is the long run effect of a pay-as-you-go Social Security program on the gross domestic product [GDP] of a country?
Q4) Which of the following categories of workers are directly affected by the minimum wage law?
A)Unskilled workers
B)Learned professionals
C)Businessmen
D)Part-time workers
Q5) What determines who bears the burden of the social security tax?
Q6) Explain how you would investigate whether wage differences are due to discrimination.
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Chapter 19: General Equilibrium Analysis and Economic Efficiency
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Q1) A change in equilibrium in one market that affects other markets is called:
A)a multiplier effect.
B)an external effect.
C)a spillover effect.
D)a lagged exchange effect.
Q2) A typical consumer consumes products X and Y.In competitive equilibrium,the price of X is three times the price of Y.If MC<sub>X</sub> is the marginal cost of producing X and MC<sub>Y</sub> is the marginal cost of producing Y,this implies that:
A)MC<sub>X</sub> = MC<sub>Y</sub> + 3
B)MC<sub>X</sub> + 3 = MC<sub>Y</sub>.
C)MC<sub>X</sub> = (1/3)MC<sub>Y</sub>.
D)MC<sub>X</sub> = 3MC<sub>Y</sub>.
Q3) In Figure 19-1,the curve TT shows:
A)a single and unique distribution of resources that jointly maximizes Hank's and Monica's well-being.
B)all the efficient resource allocations that are attainable.
C)all the points where the marginal rates of substitution between goods are equal for both Hank and Monica.
D)all the points that maximize the individual well-being of Hank and Monica.
Page 21
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Chapter 20: Public Goods and Externalities
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Q1) A Web site which allows users to share music at no cost is an example of a(n):
A)good characterized by rivalry and exclusion.
B)inferior good.
C)luxury good.
D)good that is nonrival in consumption.
Q2) Suppose there are steel manufacturing firms (firm A and firm B)in a city which release 20 units and 16 units of pollutants every year in the absence of any restriction.The government then issues tradable permits to pollute to each of the firms.The overall emission level allowed through the permits was set at 6 units for each firm.Explain with the help of a suitable figure that how the government achieves a target of reducing pollution by 24 units in the least costly way.
Q3) Which of the following is a point of similarity between public goods and the goods that generate an external benefit?
A)Both are overproduced
B)A free rider problem arises in case of both the goods
C)Both result in inefficient allocation of resources
D)Both can be produced at zero marginal cost
Q4) Explain with the help of a suitable figure,why the government needs to subsidize inoculation against a viral infection.
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