Intermediate Microeconomics
Pre-Test Questions
Course Introduction
Intermediate Microeconomics delves deeper into the analysis of decision-making by individuals and firms, exploring concepts such as consumer and producer theory, market structures, game theory, and welfare economics. The course covers how prices and quantities are determined in various types of markets, the effects of government intervention, and the role of strategic behavior among market participants. By focusing on both theoretical frameworks and real-world applications, students develop analytical tools to evaluate and predict outcomes in competitive, monopolistic, and oligopolistic markets, preparing them for advanced economic analysis and policy discussions.
Recommended Textbook
Intermediate Microeconomics and Its Application 11th Edition by Walter Nicholson
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577 Verified Questions
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2
Chapter 1: Economic Models
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Sample Questions
Q1) Normative economic analysis
A) involves the study of what comprises a normal firm.
B) involves how resources are actually used in an economy.
C) involves judgments on how resources should be used in an economy.
D) is usually thought to be a waste of time.
Answer: C
Q2) If Y = X<sup>2</sup> + Z<sup>2</sup>,the contour lines
A) are concentric circles.
B) are parabolas.
C) are hyperbolas.
D) intersect whenever either X or Z is zero.
Answer: A
Q3) The Y-intercept of Y = 3X + 8 is
A) 3/8.
B) 3.
C) 8.
D) 8/3.
Answer: C
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Chapter 2: Utility and Choice
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Sample Questions
Q1) If a person's indifference curves can be represented as a straight line,the person views the goods as
A) perfect substitutes
B) perfect complements
C) complements (but not perfect)
D) substitutes (but not perfect)
Answer: A
Q2) "If an individual is to maximize the utility received from consumption,he or she should spend all available income...." This statement assumes
A) that saving is impossible.
B) that the individual is not satiated in all goods.
C) that no goods are "inferior."
D) Both a and b.
Answer: D
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4
Chapter 3: Individual Demand Curves
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Sample Questions
Q1) If goods X and Y are complements,then the cross price elasticity of demand between them will be
A) positive.
B) negative.
C) zero.
D) infinity.
Answer: B
Q2) Two goods,X and Y,are called complements if
A) an increase in P<sub>X</sub> causes more Y to be bought.
B) an increase in P<sub>X</sub> causes less Y to be bought.
C) an increase in P<sub>Y</sub> causes less Y to be bought.
D) an increase in income causes more of both X and Y to be bought.
Answer: B
Q3) If good X is a normal good and its price rises,then quantity demanded
A) may or may not fall.
B) will always fall.
C) will always rise.
D) will remain unchanged.
Answer: B
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Page 5
Chapter 4: Uncertainty
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Sample Questions
Q1) A gamble can be described as "fair" if the expected value of the gamble (including any costs of play)is
A) positive.
B) zero.
C) negative.
D) one.
Q2) Probability is sometimes defined as
A) the expected profit of a fair bet.
B) the most likely outcome of a given experiment.
C) the outcome that will occur on average for a given experiment.
D) the relative frequency with which an event will occur.
Q3) Risk averse individuals will diversify their investments because this will
A) increase their expected returns.
B) provide them with some much-needed variety.
C) reduce the variability of their returns.
D) reduce their transactions costs.
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Chapter 5: Game Theory
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Sample Questions
Q1) 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.
Q2) Consider the game between the teens from the previous question.The pure-strategy Nash equilibrium is (equilibria are)
A) Both Declare.
B) Both Ignore/Rebuff.
C) There are two: in one, both Declare, and in the other, both Rebuff/Ignore.
D) There are two: in both, the teens do the opposite of each other.
Q3) If the Prisoners' Dilemma is repeated over and over again with the same two players having an indefinite time horizon,
A) the unique equilibrium is to play the Nash equilibrium of Confess each period.
B) players can cooperate on Silent if they are not too patient.
C) players can cooperate on Silent if they are patient enough.
D) players can only cooperate on Silent in the initial stages of the game.
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Chapter 6: Production
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Sample Questions
Q1) If Q = K<sup>1/3</sup>L<sup>2</sup> the MP<sub>K</sub> is A) constant.
B) diminishing.
C) increasing.
D) not enough information to determine.
Q2) Graphically,the average productivity of labor would be illustrated by
A) the slope of the total product curve at the relevant point.
B) the slope of the marginal productivity curve at the relevant point.
C) the negative of the slope of the marginal productivity curve at the relevant point.
D) the slope of the chord connecting the origin with the relevant point on the total output curve.
Q3) Suppose electricity (E)can be produced with coal (C)or gas (G)to operate steam turbines (T).Suppose gas is more efficiently burned than coal but that they are otherwise perfect substitutes.E = ((G + 1/2C),T)The isoquants between gas and coal will be A) hyperbolas
B) quarter circles
C) straight lines
D) rectangular
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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 variable cost is
A) Aq<sup>2</sup> + bq + cq +d/q<sub> </sub>
B) Aq<sup>2</sup> + bq + c
C) Aq<sup>3</sup> + bq<sup>2</sup> + cq
D) d
Q2) The shape of a firm's long-run average cost curve is determined by
A) the degree to which each input encounters diminishing marginal productivity.
B) the underlying nature of the firm's production function when all inputs are able to be varied.
C) how much the firm decides to produce.
D) the way in which the firm's expansion path reacts to changes in the rental rate on capital.
Q3) The opportunity cost of producing a bicycle refers to
A) the out-of-pocket payments made to produce the bicycle.
B) the value of the goods that were given up to produce the bicycle.
C) the bicycle's retail price.
D) the marginal cost of the last bicycle produced.
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) If the demand faced by a firm is inelastic,selling one more unit of output will
A) increase revenues.
B) decrease revenues.
C) keep revenues constant.
D) increase profits.
Q2) If the demand faced by a firm is elastic,selling one less unit of output will
A) increase revenue.
B) decrease revenue.
C) keep revenues constant.
D) decrease price.
Q3) A firm's marginal revenue is defined as
A) the ratio of total revenue to total quantity produced.
B) the additional output produced by lowering price.
C) the additional revenue received due to technical innovation.
D) the additional revenue received when selling one more unit of output.
Q4) If demand is inelastic,marginal revenue will be
A) positive.
B) zero.
C) negative.
D) constant.
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) The short-run market supply curve is
A) the horizontal summation of each firm's short-run supply curve.
B) the vertical summation of each firm's short-run supply curve.
C) the horizontal summation of each firm's short-run average cost curve.
D) the vertical summation of each firm's short-run average cost curve.
Q2) Suppose that the price elasticity of demand for a product is -1 and that the price elasticity of supply is +1.Assume also that the income elasticity of demand is +2.Then an increase in income of 10% will raise equilibrium price by
A) 10%.
B) 5%.
C) 20%.
D) an annual amount that cannot be determined.
Q3) 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
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Page 11
Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) The rate of product transformation refers to
A) how a consumer can trade one good for another while still maximizing his or her utility.
B) how a firm can substitute one input for another and still maintain the same production level.
C) how production of one good can be substituted for another while still using a fixed supply of inputs efficiently.
D) how quickly a firm can produce a final good while starting with only natural resources.
Q2) Consider a two-good production economy in which both goods are produced with fixed proportions production functions.Then,some efficient allocations will exhibit unemployment of some factor providing
A) the firms use the inputs in different proportions.
B) the firms exhibit diminishing returns to scale.
C) the firms exhibit increasing returns to scale.
D) production can never be efficient if there are unemployed inputs.
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Chapter 11: Monopoly
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Sample Questions
Q1) For the practice of price discrimination to be successful,the monopoly must A) be able to prevent resale of its product.
B) face similar demand curves for various markets.
C) have similar costs among markets.
D) have a downward sloping marginal cost curve.
Q2) The principal difference between economic profits for a monopolist and for a competitive firm is that
A) monopoly profits create major problems of equity whereas competitive profits do not.
B) competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
C) monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.
D) monopoly profits are considered a deadweight loss but competitive profits are not.
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13
Chapter 12: Imperfect Competition
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Sample Questions
Q1) Consider the market for nonalcoholic beers from the previous question.Which of the following is the Bertrand reaction function for Cudweiser?
A) P<sub>C</sub> = 1 + .033P<sub>B</sub> <sub> </sub>
B) P<sub>C</sub> = 1 - .033P<sub>B</sub>
C) P<sub>C</sub> = 1.5 + .075P<sub>B</sub>
D) P<sub>B</sub> = 1.5 + .075P<sub>C</sub><sub> </sub>
Q2) Relative to the case in which two identical firms choose quantities simultaneously in a Cournot model,if one of the two moves first and is observed by the other,how would this affect its output?
A) it would increase its output, more so if it could deter the other from entering the market at all.
B) it would increase its output, but would moderate this increase if it were concerned about entry deterrence.
C) it would decrease its output if it couldn't deter entry and increase it otherwise.
D) it would decrease its output whether or not it wanted to deter entry.
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14
Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) A monopolist union that desired to maximize its total wage bill (w . L)would offer that quantity of labor for which
A) labor's marginal productivity is zero.
B) labor's wage falls to zero.
C) the quantity of labor hired is as great as possible given the firm's demand curve.
D) the marginal revenue from providing one more worker to the market is zero.
Q2) When an individual's wage rises,the income effect tends to
A) increase hours worked.
B) decrease hours worked.
C) leave hours worked unchanged.
D) it is impossible to predict what will happen to hours worked.
Q3) A monopsonist will hire labor up to the point where
A) the marginal expense of labor is minimized.
B) the marginal physical productivity of labor is maximized.
C) the marginal expense of labor is equal to marginal revenue.
D) the marginal expense of labor is equal to the marginal value product of labor.
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15
Chapter 14: Capital and Time
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Sample Questions
Q1) For a given interest rate,r,which of the following expressions is smallest?
A) 1 + r.
B) (1 + r/2)<sup>2</sup>.
C) (1 + r/12)<sup>12</sup>.
D) (1 + r/365)<sup>365</sup>.
Q2) Accelerated depreciation laws may increase firms' investment in equipment because
A) machines will wear out more rapidly.
B) profits will be increased.
C) the rental rate on capital will be lowered.
D) the price of machines will fall.
Q3) In the two-period utility maximization model the opportunity cost of one unit of C<sub>1</sub> is
A) one unit of C<sub>0</sub>.
B) 1 + r units of C<sub>0</sub>.
C) 1/(1 + r) units of C<sub>0</sub>.
D) cannot be determined without more information.
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Page 16
Chapter 15: Asymmetric Information
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Sample Questions
Q1) One way the "lemons problem" in the used-car market can be mitigated is by
A) raising the price of used cars.
B) hiring auto experts to sell used cars.
C) requiring sellers to guarantee trouble-free cars.
D) allowing owners to trade in their own cars when they purchase a used car.
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.
Q3) The principal is distinct from the agent in the principal-agent model because
A)the principal offers the contract to the agent.
B)the principal is fully informed.
C)both a and b.
D)neither a nor b.
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Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) 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.
Q2) Efficient production of a public good requires
A) that individuals pay for such goods according to benefits received.
B) that each individual's MRS be equal to the RPT of public goods for private goods.
C) that the sum of individuals' MRSs be equal to the RPT of public goods for private goods.
D) that governments produce at the low point of the average cost curve for the public good.
Q3) To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be
A) the firm's marginal cost.
B) the social marginal cost.
C) the difference between the social marginal cost and the firm's marginal cost.
D) the sum of the social marginal cost and the firm's marginal cost.
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Page 18
Chapter 17: Behavioral Economics
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Sample Questions
Q1) Consider the same ultimatum game as in the previous questions but consider yet new preferences reflecting envy.In particular,now assume players get 1 util per dollar earned.That is all for the player who earns at least as much as the other.The player who earns strictly less than the other loses 1 util for each dollar difference.Which of the following is an offer that arises in a subgame-perfect equilibrium with these preferences?
A) 1.
B) 2.
C) 4.
D) 5.
Q2) The option-value principle can be roughly stated as "more choices can't make a person worse off." Are there any exceptions to this rule? Choose all that apply.
A) No.
B) Yes, in strategic situations.
C) Yes, in situations involving self-control.
D) Yes, for certain complicated financial derivatives.
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