Intermediate Microeconomics
Exam Questions
Course Introduction
Intermediate Microeconomics delves into the analytical foundations of consumer and producer behavior, market structures, and the allocation of resources in competitive and non-competitive environments. This course builds on introductory concepts to explore utility maximization, cost minimization, and the determination of equilibrium in various market settings, including perfect competition, monopoly, and oligopoly. Students will also examine the roles of government intervention, externalities, and information asymmetries, applying mathematical and graphical tools to real-world economic scenarios. By the end of the course, students will have developed a comprehensive understanding of how microeconomic principles inform decision-making by individuals and firms.
Recommended Textbook
Microeconomics Principles and Policy 12th Edition by William J. Baumol
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) Opportunity cost is the
A)cost incurred when one fails to take advantage of an opportunity.
B)cost incurred in order to increase the availability of attractive opportunities.
C)cost of the best option forgone as a result of choosing an alternative.
D)drudgery of the undesirable aspects of an option.
Answer: C
Q2) "Assume that all individuals have perfect information about prices now and in the future,that they have identical tastes,that all markets are competitive,and that there is no government." This statement is indicative of how economists
A)apply the law of supply and demand.
B)employ marginal analysis.
C)are prevented from getting correct answers.
D)abstract for analytic purposes.
E)use realistic assumptions to develop theory.
Answer: D
Q3) In scientific language,a theory is an untested assertion of alleged fact.
A)True
B)False
Answer: False
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Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) The U.S.economy is relatively closed in terms of economic activity related to exports and imports.
A)True
B)False
Answer: True
Q2) The U.S.economy is the largest in the world.What two factors primarily explain this? What makes the U.S.economy unique?
Answer: Sheer size of the country,with a population of over 300 million and a labor force of 145 million,contributes to the large production.But this cannot be the only element,or India's GDP would be three times as large.Efficiency is the second factor the U.S.economic system transforms inputs into output in a much more productive fashion.U.S.success is attributable to the free enterprise market system. What makes the U.S.economy unique is its combination of prosperity and population.While there are several countries that are rich in terms of per capita GDP,they are relatively small because of their small population and geographic size.Other countries have immense populations,but have not achieved economic prosperity in terms of per capita GDP.
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Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
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Sample Questions
Q1) Specialization in production
A)raises productivity.
B)requires money.
C)stimulates exchange.
D)All of the above are correct.
Answer: D
Q2) One popular definition of economics is the study of
A)how scarcity increases opportunities to meet ends.
B)how markets overcome scarcity.
C)one goal and three tasks.
D)how to use limited means to meet unlimited wants.
E)wants versus needs.
Answer: D
Q3) The definition of efficiency implies that production is carried out on the production possibilities frontier.
A)True
B)False
Answer: True
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Chapter 4: Supply and Demand: An Initial Look
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Sample Questions
Q1) A 1985 Harvard study showed that the price of cigarettes does not affect how much an individual smokes but whether he smokes.If this is correct,which graph in Figure 4-3 shows the typical individual's demand curve for cigarettes?
A)1
B)2
C)3
D)4
Q2) Assume that Figure 4-16 shows the supply of new houses.An improvement in the technology for building houses will shift supply from
A)S<sub>1</sub> to S<sub>2</sub>.
B)S<sub>2</sub> to S<sub>1</sub>.
C)S<sub>3</sub> to S<sub>2</sub>.
D)S<sub>3</sub> to S<sub>1</sub>.
Q3) Price ceilings set a legal maximum price on a product or commodity.
A)True
B)False
Q4) A surplus occurs when price is higher than the market equilibrium.
A)True
B)False
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Chapter 5: Consumer Choice: Individual and Market Demand
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Sample Questions
Q1) The authors state that mutual gains must exist from trade.Explain their reasoning.
Q2) As a general rule,consumers have
A)limited income.
B)unlimited desires for goods.
C)many choices of goods facing them.
D)All of the above are correct.
E)None of the above are correct.
Q3) The host at a party offers Justin a sixth beer.Justin says,"No thanks,man.The marginal utility of that fifth beer was,like,20 cents,but the marginal utility of the sixth would be minus 10 cents." From his comments,we deduce that Justin
A)is an alcoholic.
B)may think that a sixth beer would make him sick.
C)is irrational.
D)wrongly estimates the marginal utility of the fifth beer.
Q4) Using Table 5-3,graph the marginal utility curve.
Q5) A consumer will go to a point on the highest attainable indifference curve.
A)True
B)False
Q6) What are the properties of indifference curves?
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Chapter 6: Demand and Elasticity
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Sample Questions
Q1) In Figure 6-3(b),as price falls from $15 to $6,total expenditure
A)falls.
B)increases.
C)remains constant.
D)first falls and then increases.
Q2) When OPEC raises the price of petroleum,American expenditures on oil imports increase,suggesting that
A)the United States' elasticity of demand for imported oil is greater than one.
B)the United States' elasticity of demand for imported oil is less than one.
C)imported oil and domestically produced oil are complementary goods.
D)the short-run elasticity of demand for oil is greater than the long-run elasticity.
Q3) A 10 percent increase in the cost of restaurant meals,which are a luxury,will most likely
A)increase the purchase of meals by 10 percent.
B)increase the purchase of meals by less than 10 percent.
C)decrease the purchase of meals by more than 10 percent.
D)decrease the purchase of meals by less than 10 percent.
Q4) How can one tell from cross elasticity what kind of relationship exists between any two goods?
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Chapter 7: Production,Inputs,and Cost: Building Blocks for Supply Analysis
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Sample Questions
Q1) The long run is a period long enough so that one of the firm's commitments ends.
A)True
B)False
Q2) The rule that states that the marginal revenue product equal to price does not hold when there are more than two inputs.
A)True
B)False
Q3) In the long run,
A)all of the firm's input quantities are variable.
B)the firm can vary the quantities of some but not all inputs.
C)managers become less efficient.
D)the total cost of producing any given level of output is greater than or equal to the short-run total cost of producing that level of output.
Q4) The "law" of diminishing returns is also referred to as
A)the "law" of diminishing returns to scale.
B)the "law" of variable input proportions.
C)diminishing average physical product.
D)the "law" of decreasing cost.
Q5) Differentiate between the short run and the long run.
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Chapter 8: Output,Price,and Profit: The Importance of Marginal Analysis
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Sample Questions
Q1) According to the text,when management selects a price or quantity,it also selects the other.Explain why this is true.
Q2) Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3.They agree to split the lunch bill evenly.Ed chooses a hot dog.The marginal cost to Joe then of ordering a hamburger instead of a hot dog is
A)$1.
B)$2.
C)$2.50.
D)$3.
Q3) Once a firm has selected a price for its product,quantity is decided by consumers and their demand curves.
A)True
B)False
Q4) When marginal cost exceeds marginal revenue,
A)marginal profit < 0.
B)the firm should increase output.
C)marginal profit + marginal cost > marginal revenue.
D)marginal cost < marginal revenue - marginal profit.
Q5) Is it a good thing to go to a point where marginal profit is zero? Explain.
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Chapter
The Tail That Wags the Dog
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Sample Questions
Q1) A bond with a high yield
A)gives investors a high return on their investments.
B)gives investors a low return on their investments.
C)sells for a high price.
D)sells for a low price.
Q2) A hostile takeover is one opposed by the firm's existing management.
A)True
B)False
Q3) Julie is in the 28 percent tax bracket.She earns an 8 percent rate of return after taxes on a tax-free municipal bond.What will the after-tax rate of return be on a taxable bond (with equal risk)?
A)36 percent
B)28 percent
C)14 percent
D)8 percent
Q4) For legal purposes,a corporation is treated as
A)an individual.
B)a nonprofit organization.
C)a partnership.
D)a limited partner in a partnership.
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Chapter 10: The Firm and the Industry Under Perfect Competition
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Sample Questions
Q1) A tax on polluting firms
A)would shift the LRAC curve upward.
B)would shift the LRAC curve downward.
C)would have the same impact on the firm as a subsidy.
D)tends to have the perverse effect of increasing pollution.
Q2) The short-run supply curve of the perfectly competitive firm is the firm's
A)MC curve.
B)AVC curve.
C)MC curve above the minimum point on the AVC curve.
D)MC curve above the minimum point on the ATC curve.
Q3) A firm that is earning zero economic profit should go out of business.
A)True
B)False
Q4) Which of the following is a characteristic of perfect competition?
A)large barriers to entry
B)a small number of firms
C)firms selling unique goods
D)None of the above is correct.
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Q5) Why doesn't a competitive firm reduce its price below the industry price to increase sales?
Chapter 11: Monopoly
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Sample Questions
Q1) In which of the following ways is a monopolist different from a perfect competitor?
A)Average cost will continually drop as output expands.
B)Price is above marginal revenue.
C)Average total cost equals average fixed costs plus average variable costs.
D)The demand curve for the industry has a negative slope.
Q2) Which of these contributes to the existence of monopoly power?
A)a continuously decreasing long-run average cost curve
B)possession of a patent
C)control over essential output
D)All of the above are correct.
Q3) The rule of MC = MR does not apply to a monopolist.
A)True
B)False
Q4) Monopolies are always large firms with great economies of scale.
A)True
B)False
Q5) In perfect competition P = MR,but in monopoly P > MR.Why? Substantiate this statement with an example.
Q6) What arguments have been advanced in defense of price discrimination?
Page 13
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Chapter 12: Between Competition and Monopoly
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Sample Questions
Q1) Which of the following is not a requirement for the existence of monopolistic competition in a market?
A)numerous small sellers
B)full information about the market among buyers and sellers
C)product homogeneity
D)freedom of entry into the market
Q2) An example of overt collusion is
A)a cartel.
B)price leadership.
C)tacit collusion.
D)a perfectly contestable market.
Q3) Economists tend to be concerned about entry barriers.Why are entry barriers so important?
Q4) According to the kinked demand curve model,an oligopolist may face
A)more elastic demand than a monopolistic competitor.
B)less elastic demand than a monopolistic competitor.
C)more elastic demand if she raises her price than if she lowers her price.
D)less elastic demand if she raises her price than if she lowers her price.
Q5) In what way is monopolistic competition more like competition,and in what way is it more like monopoly?
Page 14
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Chapter 13: Limiting Market Power: Regulation and Antitrust
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Sample Questions
Q1) Universal service means that one company provides service to all consumers,everywhere.
A)True
B)False
Q2) Discuss the advantages of the Herfindahl-Hirschman Index compared with the four-firm concentration ratio.
Q3) When a firm sues a competitor in an antitrust case,how may it be decided if the suit is an attempt to limit or reduce competition (rent seeking)instead of preventing a restraint of competition?
Q4) One economically valid approach to regulation is simply to break all large firms into many smaller ones.
A)True
B)False
Q5) If there are strong economies of scale and scope,then society
A)will not be able to prevent overt collusion.
B)will benefit from establishing a cartel.
C)cannot benefit from regulation of a natural monopoly.
D)will not be able to preserve free competition.
Q6) Discuss some of the reasons why monopoly power is considered undesirable.
Page 15
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Chapter 14: The Case for Free Markets I: the Price System
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Sample Questions
Q1) The price of a ride on the Washington,D.C.metro depends on the time of day you ride.This is an example of A)exploitation.
B)inefficiency.
C)political interference with a market.
D)pricing to spread out demand.
Q2) Centrally planned economies do not use the price system for anything. A)True
B)False
Q3) When the invisible hand is at work,
A)the price system will sometimes give incorrect cost signals to consumers.
B)the price system will allocate resources based only on consumer need.
C)all prices will be set equal to marginal costs.
D)there will be some shortages and surpluses that cannot be avoided.
Q4) If a technological breakthrough reduces input quantities needed to produce some item,
A)cost of production will be increased.
B)the price of the product will rise.
C)the price of the product will fall.
D)quantity demanded of the product will fall.
Page 16
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Chapter 15: The Shortcomings of Free Markets
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Sample Questions
Q1) A market transaction causes an externality if someone
A)directly involved in the transaction receives uncompensated benefits or costs from it.
B)not directly involved in the transaction receives uncompensated benefits or costs from it.
C)directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out.
D)not directly involved in the transaction interferes in it by imposing regulations or product standards.
Q2) If a detrimental externality is being produced in the course of producing a good,then A)P > MSC.
B)MSC < MPC.
C)incidental costs are negative.
D)output is inefficiently large.
Q3) An appropriate government policy toward negative externalities is to
A)subsidize the activity that creates the negative externality.
B)impose a tax or fine on the activity that creates the negative externality.
C)pay money to the party that creates the negative externality.
D)impose a tax on recipients of the negative externality.
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Chapter 16: The Markets Prime Achievement: Innovation and Growth
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Sample Questions
Q1) The process by which new product or production methods are introduced is called the Industrial Revolution.
A)True
B)False
Q2) The prime engine of growth in market economies is
A)government spending.
B)consumer spending.
C)innovation.
D)private saving.
E)public saving.
Q3) More goods are available to the average American today than two hundred years ago,but today an American has to work more hours to earn the money to purchase most items.
A)True
B)False
Q4) There is assumed to be a "ratchet" effect when it comes to firms in an industry and their spending on R&D.Explain what it is about the market economy that produces that effect.
Page 18
Q5) Explain the three growth-creating properties of innovation.
Q6) Distinguish between invention and innovation.
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Chapter 17: Externalities, the Environment, and Natural Resources
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Sample Questions
Q1) Rising prices for a natural resource stimulate
A)the development of complements for the resource.
B)the development of substitutes for the resource.
C)the development of externalities from the resource.
D)All of the above are correct.
Q2) The worst and most difficult to extract resources are used first.
A)True
B)False
Q3) Environmentalists,politicians,and economists have different perspectives on what constitutes appropriate environmental policy.Which of the following statements was probably made by an economist?
A)"We take the position that there are rights involved here, rights to be protected from threats to your health, regardless of the costs involved."
B)"Protecting the environment is so important that standards cannot be too high, and continuing improvements must be made regardless of cost."
C)"Pollution is a moral issue that cannot be reduced to dollars and cents."
D)"Clean air and water are things we can buy-if the price is right."
Q4) Explain why environmental damage would be classified as an externality.
Page 20
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Chapter 18: Taxation and Resource Allocation
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Sample Questions
Q1) The Social Security system in the United States today is A)actuarially sound.
B)composed of a private pension fund into which workers have paid and who will withdraw their invested funds upon retirement.
C)currently in no danger of running out of money in the long run.
D)no longer a "pay as you go" system.
Q2) Taxation can promote good social policy while minimizing economic inefficiency.
A)True
B)False
Q3) Employers can shift payroll taxes by substituting capital for labor.
A)True
B)False
Q4) Two reasons why the Social Security system nearly went bankrupt in the early 1980s are: (i)wages were indexed but benefits were not; (ii)the percentage of elderly people in the country declined.
A)i and ii
B)i but not ii
C)ii but not i
D)neither i nor ii
Q5) Explain the purpose of payroll taxes.Is it a proportional form of tax?
Page 21
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Chapter 19: Pricing the Factors of Production
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Sample Questions
Q1) Innovation is the act of putting an invention to practical use.
A)True
B)False
Q2) The nation's stock of capital can increase only when net new investment takes place.
A)True
B)False
Q3) Rent-seeking activity by firms
A)often wastes economic resources.
B)increases economic efficiency.
C)continues even when an industry is in long-run competitive equilibrium.
D)increases the total amount of economic rent available.
Q4) When factor markets are competitive,it always pays a profit-maximizing firm to A)use more of the factor.
B)bid very low prices for inputs.
C)reduce the use of all inputs.
D)use that quantity of input that makes MRP equal to the price of the input.
Q5) How does the market mechanism distribute income?
Q6) What is the distribution of national income currently among the owners of the factors of production-land,labor,capital,and entrepreneurship?
Page 22
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Chapter 20: Labor and Entrepreneurship: The Human Inputs
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Sample Questions
Q1) Some take issue with the human capital argument that employers pay more for college graduates because firms recognize the value of human capital.What are three alternative explanations for why college grads receive higher pay?
Q2) The supply curve is believed to bend backward at high wage rates because
A)income effects outweigh substitution effects.
B)substitution effects outweigh income effects.
C)the income and substitution effects work together to create the backward bend.
D)leisure time is less attractive.
Q3) Explain what is meant when it is said that the demand for labor is a derived demand.
Q4) The labor market is composed of
A)a relatively homogeneous supply of labor and downward-sloping demand curve.
B)a vertical supply curve for labor and relatively elastic market demand.
C)many submarkets for labor of different types.
D)more teenagers than any other age group of labor.
Q5) Explain the concept of 'creative destruction' by innovation.Does it ensure positive economic profits in the long run?
Q6) Explain how a bilateral monopoly equilibrium outcome differs from a purely competitive outcome.
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Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) What are the reasons for unequal distribution of income? List at least six reasons.
Q2) The poverty line is the income level
A)earned by a worker employed full-time at the minimum wage.
B)below which a family is officially considered "poor."
C)above which a family is not entitled to government assistance.
D)that is the average for American families.
Q3) The 1994 book by Murray and Herrnstein,The Bell Curve,was about
A)government debt.
B)the intelligence factor.
C)capital growth.
D)military readiness.
Q4) How is the dividing line between poverty and nonpoverty measured? Does this method overstate the degree of poverty?
Q5) A tax is more likely to promote economic equality if it is
A)regressive.
B)proportional.
C)indirect.
D)progressive.
Q6) How does the idea of a leaky bucket relate to the study of income distribution?
Page 24
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Chapter 22: International Trade and Comparative Advantage
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Q1) A country has an absolute advantage over another in the production of widgets if it can produce
A)widgets using smaller quantities of resources than can the other country.
B)more widgets than can the other country.
C)widgets more efficiently than can the other country.
D)widgets at a lower opportunity cost than can the other country.
Q2) Table 22-4 presents the demand and supply schedules for television sets in Japan and the United States.If the United States and Japan decide to trade with each other,what will happen to the output of television sets in Japan?
A)TV production in Japan will fall by 10,000 units.
B)TV production in Japan will fall by 20,000 units.
C)TV production in Japan will fall by 30,000 units.
D)TV production in Japan will increase by 10,000 units.
Q3) What matters most in determining efficient distribution of production over the world is
A)absolute advantage.
B)efficiency.
C)the stock of resources.
D)comparative advantage.
Page 25
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