Intermediate Microeconomics
Exam Solutions
Course Introduction
Intermediate Microeconomics builds upon foundational economic principles to explore the behavior of individuals and firms in determining the allocation of limited resources. The course delves into topics such as consumer choice, production and cost theories, market structures (including perfect competition, monopoly, and oligopoly), game theory, and general equilibrium. Through graphical and mathematical models, students analyze how market mechanisms resolve supply and demand, the effects of government intervention, and the welfare implications of various market outcomes. This course emphasizes problem-solving skills and prepares students for advanced studies in economics and related disciplines.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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17 Chapters
558 Verified Questions
558 Flashcards
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Page 2
Chapter 1: Economic Models
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Sample Questions
Q1) If the production possibilities frontier can be expressed as \(4 X ^ { 2 } + Y ^ { 2 } = 16\) then the point \(X = \sqrt { 3 }\) ; \(Y = 2\) is.
A)outside the production possibilities frontier
B)on the production possibilities frontier
C)inside the production possibilities frontier
D)in the wrong quadrant to be on the graph
Answer: B
Q2) Given \(Y = f ( X , Z )\) which of the following are necessarily true?
A)Y is a linear function.
B)X,Z are dependent variables.
C)A contour line of this function would keep Y constant.
D)An increase in X would increase Y.
Answer: C
Q3) Suppose \(Q _ { D } = - 5 P + 44\) and \(Q _ { s } = P - 4\) .The equilibrium price is.
Answer: B
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Page 3
Chapter 2: Utility and Choice
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Sample Questions
Q1) Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25 and that a student's beverage budget is $20 per week.If you were going to write an algebraic expression of this budget line of the form \(\text { Coffee } = A + B T e a\) .B would be
A)16
B)2
C)-2
D)-1/2
Answer: D
Q2) Suppose a person has $20 and likes both rap music (R)and country music (C)with a set of preferences so that \(\mathrm { U } = \mathrm { C } ^ { 1 / 2 } \mathrm { R } ^ { 1 / 2 }\) .Suppose that the iTunes price of a rap music song is and the price of a country music song is \(P _ { R } = 2\) .Which level of utility is \(P _ { C } = 1\) affordable?
A) \(\sqrt { 50 }\)
B)9
C)16
D)25
Answer: A
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Page 4
Chapter 3: Demand Curves
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Sample Questions
Q1) Suppose there are two goods (X and Y).On a traditional graph of a budget line a tripling of all prices and incomes will
A)alter the slope of the budget line only.
B)alter the slope of the budget line as well as the Y-intercept.
C)alter the slope of the budget line as well as the X-intercept.
D)leave the budget line unaltered.
Answer: D
Q2) A decrease in demand is represented by
A)a shift outward of the entire demand curve.
B)a shift inward of the entire demand curve.
C)a movement along the demand curve in a southeasterly direction.
D)a movement along the demand curve in a northwesterly direction.
Answer: B
Q3) Two goods,X and Y,are called complements if
A)an increase in PX causes more Y to be bought.
B)an increase in PX causes less Y to be bought.
C)an increase in PY causes less Y to be bought.
D)an increase in income causes more of both X and Y to be bought.
Answer: B
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Page 5
Chapter 4: Uncertainty
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Sample Questions
Q1) Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 99.9%.What must the jackpot be for this to be a fair bet?
A)10
B)100
C)1,000
D)10,000
Q2) Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 99%.What must the jackpot be for this to be a fair bet?
A)10
B)100
C)1,000
D)10,000
Q3) An individual will never buy complete insurance if
A)he or she is risk averse.
B)he or she is a risk taker.
C)insurance premiums are fair. D)under any circumstances.
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6
Chapter 5: Game Theory
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Sample Questions
Q1) A lake supports a delicious variety of fish. The land around the lake is owned by two fisherman,so by state law both are free to fish as much as they like. Let FA and FB be the number of fish each catches,respectively. Suppose the price of fish is 100 - FA - FB. Given this demand curve,it turns out that marginal revenue is 100 - 2FA - FB for fisherman A and 100 - FA - 2FB for fisherman B. What is the total number of fish by both in the Nash equilibrium?
A)30
B)45
C)60
D)90
Q2) A subgame-perfect equilibrium is a Nash equilibrium that
A)cannot persist through several periods.
B)involves only credible threats.
C)consists only of dominant strategies.
D)is unique.
Q3) The Prisoners' Dilemma is so named because
A)the Nash equilibrium is one of the worst outcomes for the players.
B)the game has no Nash equilibrium.
C)the game is zero-sum.
D)players end up earning a lighter sentence than the prosecutor would like.
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Chapter 6: Production
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Sample Questions
Q1) If,as a result of doubling all its inputs,a firm can more than double its output,the firm's production function exhibits
A)constant returns to scale.
B)increasing returns to scale.
C)decreasing returns to scale.
D)increasing marginal productivity to at least one input.
Q2) If production is given by Q = K<sup>s</sup>L<sup>b</sup>,(a + b < 1)doubling both inputs
A)more than doubles output.
B)exactly doubles output.
C)increases output but does not double it.
D)leaves output unchanged.
Q3) A fixed-proportion production function has isoquants that are
A)almost flat (i.e.,the isoquants are almost straight lines).
B)L-shaped.
C)normally shaped (rectangular hyperbolas).
D)None of the above.
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8
Chapter 7: Costs
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Sample Questions
Q1) Suppose a cost function is TC = Aq<sup>3</sup> + bq<sup>2</sup> + cq +d. Then the average total cost is
A)Aq<sup>2</sup> + bq + cq +d/q
B)Aq<sup>2</sup> + bq + c
C)Aq<sup>3</sup> + bq<sup>2</sup>+ cq
D)d
Q2) Suppose a production function is q = K<sup>1/2</sup>L<sup>1/3</sup> and in the short run capital (K)is fixed at 100. If the wage is $10 and the rental rate on capital is $20,the short run marginal cost is
A)1000 + q<sup>3</sup>
B) \(\frac { 3 q ^ { 2 } } { 100 }\)
C)q<sup>3</sup>
D)2q<sup>3</sup>
Q3) Suppose a cost function is TC = Aq<sup>3</sup> + bq<sup>2</sup> + cq +d. Then the total fixed cost is
A)Aq<sup>2</sup>+ bq + cq +d/q
B)Aq<sup>2</sup> + bq + c
C)Aq<sup>3</sup> + bq2 + cq
D)d
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) The markup pricing technique involves determining the selling price of a good by adding a profit markup to minimum average cost.This would result in maximum profits only if
A)average cost were constant.
B)the markup were zero.
C)the markup varied with the elasticity of demand.
D)demand were inelastic.
Q2) If a firm is a price taker,its marginal revenue is A)equal to market price.
B)less than market price.
C)greater than market price.
D)a multiple of market price that may be either greater than or less than one.
Q3) If an unregulated electric company is a monopolist,faces demand of Q = 10050P,and has constant total costs,the profit-maximizing level of output is ?
A)50
B)100
C)25
D)12.5
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) Suppose domestic beef producers face demand of Q<sub>D</sub> = 10005P.Suppose the Chinese acquire a taste for U.S.beef such that their demand is Q<sub>D</sub> = 500 - 5P.Market demand is now
A)1000 - 10P for all P
B)1500 - 10P for all P
C)1500 - 5P for all P
D)1000 - 5P for P > 100 and 1500 - 10P for P < 100
Q2) Suppose there are 100 firms each with a short run total cost of STC = q<sup>2</sup> + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q<sub>D</sub> = 1050 - 50P,how much will be produced in the market?
A)300
B)400
C)500
D)600
Q3) Positive economic profits exist for a firm in the long run if price is above
A)long-run average cost.
B)long-run marginal cost.
C)long-run total cost.
D)long-run variable cost.
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Page 11
Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Under a perfectly competitive price system
A)an equitable allocation of the available resources will always result.
B)there is no opportunity for individuals to trade amongst themselves.
C)there is no reason to expect that voluntary trading will result in an equitable allocation of the available resources.
D)None of the above will result.
Q2) Suppose the Economics Department has a graduation party for its students but as a final test they must show they have learned something about trade.The men are given food when they walk in and the women are given drink.Suppose they have very different preferences where food and drink provide utility.For men U = F D .For women U=min(F,D)The contract curve in the Edgeworth box using a representative man and woman would be
A)a right angle connecting the lower left corner with the upper right corner.
B)a curve (not necessarily a line) connecting the lower left corner with the upper right corner.
C)a line connecting the lower left corner with the upper right corner.
D)a right angle connecting the upper left corner with the lower right corner.
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Page 12
Chapter 11: Monopoly
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Sample Questions
Q1) Which is not an example of price discriminating by separating markets?
A)offering discounts for students with IDs.
B)charging lower prices for airline tickets with a Saturday stay-over.
C)selling 13 bagels (a "baker's dozen") for the price of 12.
D)selling snowblowers at a discount in relatively warmer climates.
Q2) A natural monopoly
A)is a monopoly in the production of raw materials.
B)occurs when one firm can supply the entire market more cheaply than can a number of firms.
C)is one result of a patent.
D)results from decreasing returns to scale.
Q3) Consider the same monopoly situation as in the previous question. The monopoly price is
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Page 13
Chapter 12: Imperfect Competition
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Sample Questions
Q1) In the cartel model
A)firms believe that price increases result in a very elastic demand,while price decreases result in an inelastic demand for their products.
B)each firm acts as a price taker.
C)one dominant firm takes the reactions of all other firms into account in its output and pricing decisions.
D)firms coordinate their decisions to act as a multiplant monopoly.
Q2) Consider the market for nonalcoholic beers from the previous question.Which of the following is the best-response function for Boors from the Bertrand game?
A)PB = -2.5 + .05PC
B)PB = 2.5 + .05PC
C)PC = 2.5 - .05PB
D)PB = 2.5 - .15PC
Q3) Under the cartel model,each firm produces where
A)marginal cost equals marginal revenue.
B)price equals marginal cost.
C)the average cost curve is at a minimum.
D)price exceeds marginal cost by the greatest amount.
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Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) If the price of an input falls,a firm would increase the use of that input for two reasons:
A)The input is now more productive,and the firm can substitute this input for other relatively more expensive inputs.
B)The input is now more productive,and overall production costs are now lower,meaning a firm may choose to increase production.
C)Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs.
D)Overall production costs are now lower and the firm will have more of other inputs to use with the one in question.
Q2) Suppose the market for labor is perfectly competitive and the demand for labor is \(L = 100 - 10 w\) and market supply is \(L = - 20 + 10 w\) .If a minimum wage is imposed at w = 8,the loss to firms will be
A)20
B)40
C)60
D)80
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15
Chapter 14: Capital and Time
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Sample Questions
Q1) Suppose a person's preferences are to "consumption smooth",which means they wish to get \(C _ { 1 } = C _ { 2 }\) for all incomes and interest rates.For any interest rate and \(Y _ { 1 } > Y _ { 2 }\) ,the person will ____ in the first period.
A)borrow
B)save
C)neither borrow nor save
Q2) Suppose Johnny Stroller sells 12,25,and 75 year-old scotch in under black,red,and blue labels.Suppose the storage costs are zero and the initial production costs are the same.What is the implied (approximate)interest rate if black sells for $18,red for $34 and blue for $388.
A)2
B)5
C)8
D)10
Q3) A rise in the real interest rate r
A)creates income and substitution effects that reduce C0.
B)creates income effects that reduce C0,substitution effects that increase C0.
C)creates income effects that increase C0,substitution effects that reduce C0.
D)creates income and substitution effects that increase C0.
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Page 16
Chapter 15: Asymmetric Information
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Sample Questions
Q1) Which of the following is an application of the moral-hazard problem?
A)a person buying insurance after a cancer diagnosis.
B)an salesperson who is not paid on commission being rude to customers.
C)coffee hounds buying the menu item meant for lower-demand consumers.
D)only inexperienced workers applying for a managerial job advertised with a relatively low salary.
Q2) How is it logically possible for a monopolist to get different consumers to purchase different bundles on a menu (such as different sizes of coffee cups),and thereby achieve a form of price discrimination,even if the firm cannot observe the consumers' valuations directly?
A)Different types of consumers have different tradeoffs between money and amounts of the good.
B)The monopolist can use a market-separation strategy.
C)Social norms are powerful deterrents to lying about one's type.
D)This is impossible: if one bundle is preferred by one type,logically it will be preferred by all.
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Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) In the case of a positive externality,social marginal cost will
A)exceed private marginal cost.
B)be equal to private marginal cost.
C)fall short of private marginal cost.
D)have no specific relation to private marginal cost.
Q2) Perfectly competitive markets will tend to under-allocate resources to nonexclusive public goods because
A)these goods are produced under conditions of increasing returns to scale.
B)no single individual can appropriate the total benefits provided by the purchase of such goods.
C)these goods are best produced under conditions of monopoly.
D)no private producer can provide the capital necessary to produce such goods.
Q3) Special interest groups often
A)represent broad questions of public interest.
B)pursue rent-seeking behavior.
C)do not use lobbying techniques.
D)have no effect on the political process.
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18
Chapter 17: Behavioral Economics
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Sample Questions
Q1) What are the main differences between neoclassical economics and behavioral economics?
A)Neoclassical economics is mainly theoretical.
B)Behavioral economics does not take as given that decision makers are rational.
C)Neoclassical economics assumes that decision makers are fully informed.
D)All of the above.
Q2) An individual has preferences consistent with standard expected utility theory. They have utility function U(x)over wealth x. Starting with initial wealth of $10,000,the person is then faced with two choice problems. The first involves a choice between (A)no gamble and (B)a gamble with an equal chance of winning $1,800 and losing $1,000. The second choice problem,the person first has $1,000 taken away (resulting in the adjustment of the reference point). The choice is then between (C)being given back $1,000 for sure and (D)an equal chance of winning $2,800 or nothing. What can be said about the choices the person would make?
A)The person would never choose both A and D.
B)The person would never choose both A and C.
C)The person would choose A and D.
D)The person would choose A and C.
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