Intermediate Microeconomics
Practice Questions
Course Introduction
Intermediate Microeconomics delves into the fundamental principles that govern the behavior of individuals and firms in allocating limited resources among competing uses. The course expands on basic microeconomic concepts by exploring consumer theory, producer theory, market structures (such as perfect competition, monopoly, and oligopoly), and the role of government intervention in markets. Students analyze how market outcomes are influenced by various economic forces, understand the mechanisms of price determination, and study welfare implications under different scenarios. The course emphasizes analytical techniques and mathematical models to rigorously examine real-world economic issues and policy debates.
Recommended Textbook
Microeconomics 4th Australian Edition by Glenn Hubbard
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3337 Verified Questions
3337 Flashcards
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) What is a centrally planned economy?
Answer: A centrally planned economy is an economy in which the government decides how economic resources will be allocated.
Q2) 'The distribution of income should be left to the market' is an example of a positive economic statement.
A)True
B)False
Answer: False
Q3) Even if the population declines, scarcity will still exist.
A)True
B)False
Answer: True
Q4) When voluntary exchange takes place, both parties gain from the exchange.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Choices and Trade-Offs in the Market
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Sample Questions
Q1) Which of the following statements is true?
A)Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.
B)Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.
C)Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others.
D)Individuals who have never been the best at doing anything must have an absolute advantage in at least ones task.
Answer: B
Q2) Which of the following is not a factor of production?
A)An acre of farmland
B)A drill press in a machine shop
C)The manager of the local tire shop
D)$1000 in cash
Answer: D
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) Assume that the price for air conditioner maintenance services has risen and sales of these services have fallen.One can conclude that________.
A)the law of supply has been violated.
B)the demand for air conditioner maintenance services has increased.
C)the supply of air conditioner maintenance services has decreased.
D)air conditioner maintenance services are becoming more technologically advanced.
Answer: C
Q2) Refer to Figure 3.4.If the current market price is $10, the market will achieve equilibrium by:
A)a price increase, increasing the supply and decreasing the demand.
B)a price decrease, decreasing the supply and increasing the demand.
C)a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
D)a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Answer: D
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5
Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.
A)True
B)False
Q2) Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to 'feed his muscles' every day.On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?
A)It is elastic.
B)It is perfectly elastic.
C)It is perfectly inelastic.
D)The price elasticity coefficient is 0.
Q3) If, when price changes by 35 per cent, the quantity demanded changes by 7 per cent, then the absolute value of the price elasticity of demand is 5.
A)True
B)False
Q4) Necessities tend to have more inelastic demands than luxuries.
A)True
B)False
Page 6
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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Sample Questions
Q1) Which term refers to a legally established minimum price that firms may charge?
A)A price ceiling
B)A subsidy
C)A price floor
D)A tariff
Q2) Refer to Figure 5.1.If the market price is $2.00, what is the consumer surplus on the second burrito?
A)$0
B)$1.00
C)$2.00
D)$4.50
Q3) The actual division of the burden of a tax between buyers and sellers in a market is called
A)tax incidence.
B)tax liability.
C)tax bearer.
D)tax parity.
Q4) If the market price is at equilibrium, the producer surplus is minimised.
A)True
B)False
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Chapter 6: Consumer Choice and Behavioural Economics
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Sample Questions
Q1) The income effect of a price increase for a Giffen good outweighs the substitution effect.
A)True
B)False
Q2) A Giffen good could be either a normal good or an inferior good.
A)True
B)False
Q3) What is the restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available?
A)Maximising behaviour.
B)Economising behaviour.
C)The price constraint.
D)The budget constraint.
Q4) What is an indifference curve? Why can indifference curves never cross?
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Chapter 7: Technology Production and Costs
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Sample Questions
Q1) A U-shaped long run average cost curve implies that a firm experiences economies of scale at low levels of production and diseconomies of scale at high levels of production.
A)True
B)False
Q2) If average product is decreasing, then marginal product must be negative.
A)True
B)False
Q3) A firm's short-run average total cost curve is parallel to its short-run average variable cost curve.
A)True
B)False
Q4) State the law of diminishing marginal returns.
Q5) If a firm experiences diminishing returns, its marginal product must be negative. A)True
B)False
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Chapter 8: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.
A)True
B)False
Q2) Which of the following is not an assumption of perfectly competitive markets?
A)There are many sellers and many buyers, all of which are small relative to the market.
B)Each firm produces a similar but not identical product.
C)There are no barriers to new firms entering the market.
D)The products sold by all firms in the market are identical.
Q3) In analysing the decision to shut down in the short run, we assume that the firm's fixed costs are
A)implicit costs.
B)capital costs.
C)nonmonetary opportunity costs.
D)sunk costs.
Q4) Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.
A)True
B)False
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) A monopoly is a seller of a product
A)with many substitutes.
B)without a close substitute.
C)with a perfectly inelastic demand.
D)without a well-defined demand curve.
Q2) Refer to Figure 9.9.The difference between the monopoly's price and the perfectly competitive industry's price is
A)The monopoly's price is higher by $9.50.
B)The monopoly's price is higher by $13.
C)The monopoly's price is higher by $3.50.
D)The monopoly's price is higher by $21.
Q3) 'Being the only seller in the market, the monopolist can choose any price and quantity it desires.' Evaluate this statement: Is it true or false? Explain your answer.
Q4) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
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Chapter 10: Monopolistic Competition: The Competitive
Model in a More Realistic
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Sample Questions
Q1) A monopolistically competitive firm that earns an accounting profit in the short run
A)must also earn an economic profit in the short run.
B)does not earn enough to earn an economic profit in the short run.
C)could earn an economic profit, break even or suffer an economic loss in the short run.
D)could earn an economic profit or break even, but could not suffer an economic loss in the short run.
Q2) If price exceeds average variable cost but is less than average total cost, a firm
A)should further differentiate its product.
B)should stay in business for a while longer until its fixed costs expire.
C)is making some profit but less than maximum profit.
D)should shut down.
Q3) Refer to Table 10.3.What is the best course of action for the firm in the short run?
A)It should shut down.
B)It should stay in business because it covers some of its fixed cost.
C)It should increase its sales by lowering its price.
D)It should not cut its price, but it should increase its sales by advertising.
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Page 12
Chapter 11: Oligopoly: Markets With Few Competitors
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Sample Questions
Q1) Refer to Table 11.3.Does Baine have a dominant strategy and, if so, what is it?
A)Yes, Baine should increase its advertising budget.
B)Yes, Baine should keep its advertising budget as is.
C)There are two dominant strategies: if Alistair increases its advertising budget, then Baine's best bet is to keep its budget the same, but if Alistair does not increase its spending, then Baine should raise its advertising budget.
D)No, there is no dominant strategy.
Q2) Refer to Table 11.1.Is there a dominant strategy for Godrickporter and, if so, what is it?
A)No, its outcome depends on what Star Connections does.
B)Yes, Godrickporter should increase its advertising spending.
C)Yes, Godrickporter should reduce its advertising spending.
D)Yes, Godrickporter's dominant strategy is to collude with Star Connections.
Q3) The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called A)game theory.
B)oligopoly.
C)competitive analysis.
D)strategic analysis.
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Chapter 12: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) The difference between labour's marginal product and marginal revenue product is
A)The marginal product of labour is the increase in output as a result of hiring an additional worker, while the marginal revenue product of labour is the increase in profit as a result of hiring an additional worker.
B)The marginal revenue product of labour is the dollar value of hiring an additional worker, while the marginal product of labour is the increase in the firm's physical output as a result of hiring an additional worker.
C)The marginal product of labour is the additional labour's contribution to the firm's total output, while the marginal revenue product is the additional labour's contribution to the firm's total sales revenue.
D)Labour's marginal product is a measure of labour's productivity, while labour's marginal revenue product is a measure of labour's ability to sell the firm's products.
Q2) What does a decrease in the wage rate cause?
A)an increase in the quantity of labour demanded.
B)a rightward shift of the firm's labour demand curve.
C)a leftward shift of the firm's labour demand curve.
D)a decrease in labour's productivity.
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Page 14
Chapter 13: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints.With voluntary export restraints, foreign producers
A)agree to meet specific quality standards required by the importing country.
B)limit their exports to a country.
C)pay a tax on all products they export.
D)must agree to import an equal quantity of products that they export.
Q2) Assume that Bulgaria has a comparative advantage in producing sandals and Finland imports sandals from Bulgaria.We can conclude that
A)Bulgaria also has an absolute advantage in producing sandals relative to Finland.
B)Bulgaria has a lower opportunity cost of producing sandals relative to Finland.
C)Finland has an absolute disadvantage in producing sandals relative to Bulgaria.
D)labour costs are higher for sandal producers in Finland than in Bulgaria.
Q3) One of the main sources of comparative advantage is internal economies.
A)True
B)False
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce
A)the problem of adverse selection.
B)the moral hazard problem.
C)sunk costs.
D)asymmetric information.
Q2) Which of the following is not an advantage to an insurance company insuring a large group of people for health insurance?
A)The characteristics of a large group are likely to reflect those of the entire population.
B)It is easier to accurately predict the number of claims for a group than for an individual.
C)When all group members pay the premium, the problem of moral hazard is reduced.
D)When all group members pay the premium, the problem of adverse selection is reduced.
Q3) What is rent seeking and how is it related to regulatory capture?
Q4) Will equilibrium in a market always result in an outcome that is economically efficient? Explain.
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Chapter 15: Externalities, Environmental Policy and Public Goods
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Sample Questions
Q1) A public good is
A)a good that is rival and excludable.
B)good that is non-rival and non-excludable.
C)a good that is non-rival and excludable.
D)a good that is rival and non-excludable.
Q2) In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge.Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat.Why was the grass depleted?
A)Self-interest motives led livestock owners to raise too many cows and sheep.
B)The area of pasture was non-excludable and the consumption of the grass was rival.
C)It did not get enough rainfall.
D)Because of a policy of neglect on the part on the English government
Q3) All of the following are examples of public goods except
A)broadcast television with commercials.
B)clean water systems.
C)stock of knowledge in the public domain.
D)crime prevention.
Q4) What are some of the limitations of the Coase theorem in practice?
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) The actual division of a tax between buyers and sellers in a market is the excess burden of the tax.
A)True
B)False
Q2) Refer to Figure 16.5.The middle 40 per cent of households
A)earn 20 per cent of the society's total income.
B)earn 40 per cent of the society's total income.
C)earn 48 per cent of the society's total income.
D)earn 50 per cent of the society's total income.
Q3) A Lorenz curve summarises the information provided by a Gini coefficient.
A)True
B)False
Q4) Which of the following summarises the information provided by a Lorenz curve?
A)The Lorenz coefficient
B)The income distribution ratio
C)The Gini coefficient
D)The slope (the rise divided by the run)of the Lorenz curve at a particular point on the curve
Q5) Explain the effect of price elasticities of supply and demand on tax incidence.
Page 18
Q6) Describe the main factors economists believe cause inequality of income.
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