Intermediate Microeconomics
Practice Questions
Course Introduction
Intermediate Microeconomics builds upon introductory economic principles to provide a deeper understanding of how individuals and firms make decisions in various market environments. The course covers topics such as consumer and producer theory, market structures (including perfect competition, monopoly, and oligopoly), pricing strategies, and the role of government intervention. Analytical tools such as constrained optimization and comparative statics are introduced to rigorously examine the allocation of resources and market outcomes. Through theory, mathematical modeling, and real-world applications, students gain insight into the complexities of economic interactions and are prepared for more advanced studies in economics.
Recommended Textbook Microeconomics 19th Edition by Paul A. Samuelson
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Chapter 1: The Central Concepts of Economics
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Sample Questions
Q1) "Scarcity" in economics refers basically to:
A)periods of famine.
B)monopolization of existing supplies of goods.
C)monopolization of resources to provide goods.
D)monopolization of outlets to sell goods.
E)none of the above.
Answer: E
Q2) Which of the following would be considered a free good?
A)Fresh water.
B)Forests in the northwestern United States.
C)The advice of economists.
D)All the above.
E)None of the above.
Answer: E
Q3) A system of prices is the primary determinant of what, how, and for whom in a capitalistic economy.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Modern Mixed Economy
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Sample Questions
Q1) The principle of the "invisible hand" claims that:
A)the selfish pursuits of everyone's own interest will lead to the best good for all under market competition.
B)government must gently guide economic activity so that the best for all will be attained.
C)government policies work like an invisible hand, steering resources to their best use.
D)producers must quietly cooperate so that prices are not so low as to cause losses.
E)none of the above.
Answer: A
Q2) The extent to which roundabout methods of production are used at one moment in time is limited by the extent to which people have abstained from consumption in the past.
A)True
B)False
Answer: True
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Chapter 3: Basic Elements of Supply and Demand Part
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Sample Questions
Q1) An increase in price will lead to a lower quantity demanded because:
A)suppliers will supply only the smaller amount.
B)quality deteriorates.
C)people will purchase less of the good.
D)all of the above.
E)none of the above.
Answer: C
Q2) Given a normal upward sloping supply schedule and a downward sloping demand schedule, an increase in labor productivity should result in a lower equilibrium price for the concerned good.
A)True
B)False
Answer: True
Q3) An increase in price will lead to a lower quantity demanded because:
A)suppliers will supply only the smaller amount.
B)some individuals will no longer purchase the good.
C)individuals purchase less of the good.
D)a and b.
E)b and c.
Answer: E
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Chapter 4: Supply and Demand: Elasticity and Applications
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Sample Questions
Q1) Sales of the common necessities of life tend to increase sharply when there is a drop in their price.
A)True
B)False
Q2) The more price inelastic the demand for a good, the greater tends to be the incidence on consumers of a per-unit tax.
A)True
B)False
Q3) When all farmers have a small harvest, their total (combined)revenue may actually go up.This shows that the market demand for these agricultural products is relatively price inelastic in this price range.
A)True
B)False
Q4) If a demand curve displays unitary elasticity, an upward shift in the supply curve will: A)raise total revenue.
B)lower total revenue.
C)have no effect on total revenue.
D)have an indeterminant effect on total revenue.
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6
Chapter 5: Demand and Consumer Behavior
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Sample Questions
Q1) The rise in the price of butter will lead to:
A)a fall in the demand curve for butter.
B)a rightward shift in the demand curve for butter's substitute.
C)a leftward shift in the demand curve for butter's substitute.
D)an increase in the marginal utility of the last unit consumed of butter's substitute.
E)none of the above.
Q2) Which of the following describes "utility"?
A)how consumers rank different goods and services.<sub> </sub> <sub> </sub>
B)how useful is a good or service.<sub> </sub>
C)how many different things a good or service can do.<sub> </sub>
D)when consumers use goods or services.
E)none of the above.
Q3) The law of diminishing marginal utility states:
A)marginal utility is always going down.
B)as the amount of a good consumed increases, the marginal utility of that good tends to decline.
C)some goods have a lower marginal utility than others.
D)you can never have too much ice cream.
E)none of the above.
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Page 7
Chapter 6: Production and Business Organization
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Sample Questions
Q1) Suppose that production is defined by the function recorded in Table 6-2.If that function displays constant returns to scale, then output for 20 units of land and 8 units of labor will equal 136.
A)True
B)False
Q2) Suppose that production of a particular good requires two inputs, labor (L)and capital (K).If K is fixed, which of the panels in Figure 6-1 possibly represent(s)decreasing marginal productivity of labor?
A)Panel a.
B)Panel b.
C)Panel c.
D)All of the above.
E)None of the above.
Q3) The number of workers you can hire for your farm is usually a short run variable.
A)True
B)False
Q4) The total product for your farm is the sum of the output for each worker.
A)True
B)False
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Chapter 7: Analysis of Costs
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Sample Questions
Q1) If q = 1, 2, 3 units of output, and total costs are, respectively, $2, 3, 4, then in this range of output marginal cost:
A)is constant.
B)is rising.
C)is falling.
D)is $2.00, $1.50, $1.33.
E)can't be determined by the data given.
Q2) If 25 units of a good are produced at a fixed cost of $50 and a total cost of $550, then the average variable cost of producing the good is:
A)$15.
B)$20.
C)$25.
D)$30.
E)none of the above.
Q3) The substitution rule requires firms to substitute into the use of new technology whenever possible.
A)True
B)False
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Chapter 8: Analysis of Perfectly Competitive Markets
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Q1) For the market whose typical firm is characterized in Figure 8-2, the long-run competitive level of output is 5.
A)True
B)False
Q2) The fact that some large firms are earning positive profits while smaller firms in the same industry are losing money is not in itself an indication of monopoly power.
A)True
B)False
Q3) For the market whose typical firm is characterized in Figure 8-2, the long-run competitive equilibrium price is $1000.
A)True
B)False
Q4) There can be an efficient allocation of resources even if P does not equal MC for all commodities.
A)True B)False
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Chapter 9: Imperfect Competition and Monopoly
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Sample Questions
Q1) Oligopolists differ from monopolists in that they:
A)equate marginal revenue with average cost.
B)equate marginal cost with a price read from a demand curve.
C)face a competitor selling a similar product.
D)maximize total revenue.
E)all of the above.
Q2) The output level that maximizes a firm's profits also minimizes marginal costs.
A)True
B)False
Q3) Two possible reasons for the existence of an imperfectly competitive market are:
A)product differentiation and free trade.
B)constant returns to scale and a lack of market regulation.
C)increasing returns to scale and barriers to free entry.
D)a lack of market segmentation and "U" shaped marginal cost curves.
E)none of the above.
Q4) The market demand curve and the demand curve facing the firm are the same in all imperfectly competitive markets.
A)True
B)False
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Chapter 10: Competition Among the Few
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Sample Questions
Q1) Many firms practice mark up pricing, since it allows for profit maximization.
A)True
B)False
Q2) If the four-firm concentration ratio in an industry is 89%, we can say that the industry is highly concentrated.
A)True
B)False
Q3) The imperfect competitor shown in Figure 10-3:
A)could be in a long-run equilibrium situation for monopolistic competition, since P = AC.
B)must be in a long-run equilibrium situation for a monopoly, since P = AC.
C)should shut down, since profits are zero.
D)cannot be in a long-run equilibrium situation for monopolistic competition, since P is not equal to MC.
E)none of the above.
Q4) Dominant strategy is the situation that arises when one player has a single best strategy no matter what strategy the other player follows.
A)True
B)False
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Chapter 11: Economics of Uncertainty
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Sample Questions
Q1) Health care has a high income elasticity, indicating that ensuring a long and fit life becomes increasingly important as people are able to pay for other essential needs.
A)True
B)False
Q2) Adverse selection may occur in insurance markets because:
A)only the rich are most likely to buy the insurance.
B)only the poor are most likely to buy insurance.
C)only the people with the highest risk are most likely to buy the insurance.
D)A and B are correct.
E)None of the above.
Q3) Private insurance markets should always exist even when confronted with a few, highly correlated insurable events.
A)True
B)False
Q4) Information is the same as any other manufactured good.
A)True
B)False
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Page 13
Chapter 12: The Labor Market
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Sample Questions
Q1) In a perfectly competitive market, output price is equal to the marginal cost of production.
A)True
B)False
Q2) In most cases, the supply of input factors responds positively to price.
A)True
B)False
Q3) It is impossible to have an increase in income without having an increase in wealth.
A)True
B)False
Q4) The marginal revenue product of input A:
A)the additional revenue produced by an additional unit of input A.
B)the additional revenue produced by more than one unit of input A.
C)the subtraction of revenue produced by an additional unit of input A.
D)the total revenue produced by input A.
E)none of the above.
Q5) Output demand curves are derived from factor demand curves.
A)True
B)False
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Chapter 13: Land, Natural Resources, and the Environment
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Q1) Changes in real wages are calculated by comparing changes in money wages with changes in the:
A)rate of profits.
B)cost of living.
C)effort of the work.
D)tax rate.
E)none of the above.
Q2) In Figure 13-3, along curve D, the marginal revenue product of the 6th unit of labor is: A)14.
B)12.
C)10.
D)8.
E)It can't be determined from the information given.
Q3) What factors have affected the US labor market?
A)influx of women.
B)influx of low-skill immigrants.
C)education of the labor force.
D)all of the above.
E)none of the above.
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Page 15
Chapter 14: Capital, Interest, and Profits Part Four:
Applications of Economic Principles
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Sample Questions
Q1) An externality is an activity that imposes involuntary costs or benefits on others, or an activity whose effects are not completely reflected in its market price.
A)True
B)False
Q2) If a factor of production receives rent, the rent is determined by the:
A)price of the final good.
B)elasticity of the factor's supply.
C)cost of the factor's inputs.
D)price of all other factors.
E)all of the above.
Q3) Which of the following is not associated with the concept of profit?
A)Rewards for risk-taking.
B)Rewards for innovation.
C)Monopoly returns.
D)Implicit returns to factors supplied by owners.
E)All of the above are related to the concept of profit.
Q4) The supply curve for land is completely inelastic, or vertical.
A)True
B)False
Page 16
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Chapter 15: Government Taxation and Expenditure
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Sample Questions
Q1) A firm's profits equal:
A)sales minus wages.
B)net worth minus depreciation and factor costs.
C)income minus liabilities corrected for inflation.
D)total revenue minus total cost.
E)total revenue minus total labor cost only.
Q2) Which of the following is not associated with the concept of profit?
A)Rewards for risk-taking.
B)Rewards for innovation.
C)Monopoly returns.
D)Implicit returns to factors supplied by owners.
E)All of the above are related to the concept of profit.
Q3) If the interest rate is 10% and you will receive $2000 next year and $3000 in three years, what is the present value?
A)$5000.
B)$6000.
C)$5500.
D)$4075.
E)none of the above.
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Page 17
Chapter 16: Efficiency Vsequality: The Big Trade-Off
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Q1) A sales tax on a consumer good on which the wealthy spend a higher proportion of their income than the poor would be progressive.
A)True
B)False
Q2) State and local governments spend more each year on public education than they do for police and fire protection.
A)True
B)False
Q3) Before the twentieth century, local government was by far the most important of the three levels of government.
A)True
B)False
Q4) What type of event could move the economy from point E to G in Figure 16-1?
A)A tax which redistributes income from rich to poor.
B)Massive highway construction
C)Tax on rich which subsidizes income support programs.
D)A and B
E)A and C
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Chapter 17: International Trade
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Sample Questions
Q1) Today, expenditures by the federal government targeted directly at helping the poor amounted to:
A)10% of the total federal budget.
B)13% of the total federal budget.
C)20% of the total federal budget.
D)25% of the total federal budget.
E)30% of the total federal budget.
Q2) In 2006, the percentage of children living below the poverty line was roughly:
A)5 percent.
B)10 percent.
C)17 percent.
D)21 percent.
E)28 percent.
Q3) When the Lorenz curve more closely approximates the 45 degree line, income is being:
A)distributed more equally.
B)distributed more unequally.
C)enlarged for nearly every economic class.
D)taxed more heavily to pay international debts.
E)none of the above.
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Chapter 18: Overview of Macroeconomics
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Sample Questions
Q1) In 2007, the United States exported more automotive vehicles and parts than it imported.
A)True
B)False
Q2) If the world price in Figure 18-3 were $2.50, what size quota would be required to keep domestic supply at the no-trade levels?
A)0 units.
B)50 units.
C)100 units.
D)150 units.
E)200 units.
Q3) Which of the following are some important differences between domestic and international trade?
A)Expanded trading opportunities.
B)Sovereign nations.
C)International finance.
D)all of the above.
E)none of the above.
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Chapter 19: Geometrical Analysis of Consumer Equilibrium
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Q1) If your income is halved, your budget line will shift twice as far from the origin in a parallel way.
A)True
B)False
Q2) A purpose of indifference-curve analysis is to:
A)derive a theory of producer behavior.
B)prove the law of diminishing utility.
C)derive a theory of consumer behavior without requiring absolute utility measurement.
D)prove that the demand curve for all commodities is negatively sloped.
E)describe market phenomena.
Q3) A consumer's indifference curves will be influenced by all the following except:
A)household size.
B)education.
C)prices.
D)advertising.
E)none of the above.
Q4) All consumers have the same indifference curves.
A)True
B)False
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Chapter 20: Production Cost Theory and Decisions of the Firm
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Sample Questions
Q1) At Q = 100 in Figure 7A-2, to be producing at least cost, the ratio of (marginal productivity of land)/(marginal productivity of labor)must be:
A)1.
B)1.5.
C)1.67.
D)2.
E)It cannot be determined from the information given.
Q2) Suppose a producer wants to increase production of good y from 100 to 200.Assume MP<sub>L</sub>/MP<sub>K</sub> and input prices remain constant.If point A in Figure 7A-1 represents the best possible combination of inputs for production of 100, which point represents the new best possible combination?
A)Point B
B)Point C
C)Point D
D)All of the above.
E)None of the above.
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