Intermediate Microeconomics
Textbook Exam Questions
Course Introduction
Intermediate Microeconomics builds on foundational economic principles to analyze how individuals and firms make choices under conditions of scarcity. The course explores consumer behavior, production and cost theory, market structures such as perfect competition, monopoly, and oligopoly, as well as the role of government intervention and market failures. Through both graphical and mathematical tools, students develop a deeper understanding of how prices and outputs are determined in various markets, and how these outcomes affect resource allocation and social welfare.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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Chapter 1: Economic Models
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Q1) In the equation \(Y = 13 x + 38\) where Y is a function of X
A) Y is the independent variable.
B)38 is a variable.
C)the slope of the line is 38.
D)None of the above.
Answer: D
Q2) An increase in the technology used in the production of only one of the two goods in a society will
A)eliminate scarcity
B)move the production possibilities frontier out in all directions
C)move the production possibilities frontier in all directions
D)leave one intercept of the production possibilities frontier fixed and swing out from the other
Answer: D
Q3) If \(Y = X ^ { 2 } + Z ^ { 2 }\) ,the contour lines.
A)are concentric circles.
B)are parabolas.
C)are hyperbolas.
D)intersect whenever either X or Z is zero.
Answer: A
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Chapter 2: Utility and Choice
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Q1) If an individual's indifference curve map does not obey the assumption of a diminishing MRS,then
A)the individual will not maximize utility.
B)the individual will buy none of good X.
C)tangencies of indifference curves to the budget constraint may not be points of utility maximization.
D)the budget constraint cannot be tangent to an appropriate indifference curve.
Answer: C
Q2) Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2.Then the MRS (of soft drinks for hot dogs)-that is,the number of hot dogs the individual is willing to give up to get one more soft drink is
A)5
B)2
C)1/2
D)1/5
Answer: D
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Chapter 3: Demand Curves
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Q1) Suppose \(U = \min ( X , Y )\) and the price of X is 1,the price of Y is 1 and income is $12.If the price of X increases to 2,the substitution effect is
A)2
B)-1
C)0
D)-2
Answer: C
Q2) An increase in the price of good X will be accompanied by A)a shift in the market demand curve for good X.
B)a shift in the market demand curve for good Y (a substitute for good X).
C)a movement along the market demand curve for good X.
D)Both b and c
Answer: D
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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Chapter 4: Uncertainty
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Sample Questions
Q1) Continuing with the same vacation-insurance company from the preceding question,is there any vacation-day price that would both strictly increase the family's expected utility (compared to no insurance)and strictly increase the profits of the risk-neutral insurance company?
A)Yes,two days.
B)Yes,three days.
C)Yes,four days.
D)No.
Q2) 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.
Q3) Continuing with the same vacation-insurance company from the preceding question,what vacation-day price(s)would be acceptable to both the family and the insurance company?
A)2 only
B)3 only
C)2 or 3
D)4
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Chapter 5: Game Theory
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Sample Questions
Q1) 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.
Q2) When a game has multiple equilibria,a useful method to sort out which one would be the "best" prediction is to
A)find the one (if any) in which both players are better off than in any other equilibrium.
B)find the equilibrium that is symmetric,if any.
C)find the one which seems "focal",if any.
D)all of the above.
Q3) The game of Matching Pennies
A)has no Nash equilibrium.
B)has a pure-strategy Nash equilibrium.
C)has a mixed strategy Nash equilibrium.
D)has multiple Nash equilibria.
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Chapter 6: Production
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Sample Questions
Q1) When isoquants get progressively further apart there is A)increasing returns to scale
B)decreasing returns to scale
C)constant returns to scale
Q2) In a two-input model you can tell that a non-optimal short-run production decision is being made if
A)all decisions in the short run are nonoptimal
B)the rate of technical substitution is equal to the ratio of the input prices
C)the rate of technical substitution is not equal to the ratio of the input prices
Q3) If Q = K<sup>2</sup>L<sup>2</sup> the MP<sub>L</sub> is A)constant
B)diminishing
C)increasing
Q4) If Q = K<sup>1/2</sup>L<sup>1/2</sup> the MP<sub>L</sub> is
A)constant
B)increasing
C)diminishing
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Chapter 7: Costs
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Q1) The expansion path for a constant-returns-to-scale production function
A)is a straight line through the origin with a slope greater than 1 if w > v.
B)is a straight line through the origin with a slope greater than 1 if w < v.
C)is a straight line through the origin,though its slope cannot be determined by w and v alone.
D)has a positive slope but is not necessarily a straight line.
Q2) The firm's expansion path records
A)profit-maximizing output choices for every possible price.
B)cost-minimizing input choices for all possible output levels for when input prices expand along with production.
C)cost-minimizing input choices for all possible output levels for a fixed set of input prices.
D)cost-minimizing input choices for profit-maximizing output levels.
Q3) A firm's marginal cost is defined as
A)the ratio of total cost to total output.
B)the ratio of total output to total cost.
C)the additional cost of producing one more unit of output.
D)the reciprocal of total average cost.
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Chapter 8: Profit Maximization and Supply
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Q1) If demand is inelastic,marginal revenue will be
A)positive.
B)zero.
C)negative.
D)constant.
Q2) If the demand curve a firm faces shifts to the right,usually
A)it would be impossible to tell whether the marginal revenue curve shifts.
B)the marginal revenue curve would shift to the left.
C)the marginal revenue curve would shift to the right.
D)the marginal revenue curve would not shift.
Q3) A firm's total revenue is equal to
A)total quantity produced times marginal cost.
B)total quantity produced times market price.
C)marginal revenue times total quantity produced.
D)market price divided by total quantity produced.
Q4) Suppose that a firm has to pay a 10% tax on revenue.The profit-maximizing level of output is ?
A)unaffected by the tax.
B)increased because of the tax.
C)decreased because of the tax.
Page 10
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Chapter 9: Perfect Competition in a Single Market
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Q1) Per-unit transaction costs
A)may cause the demand and supply curves to shift either inward or outward depending on the value obtained from transaction agents.
B)refer only to the commission paid to a third party for each transaction made.
C)are absorbed by the party seeking the transaction.
D)have the same effect on behavior as do lump-sum transaction costs; the difference in terminology is purely definitional.
Q2) Who benefit(s)from protectionism?
A)Consumers
B)Domestic producers
C)No one
D)Both consumers and domestic producers.
Q3) If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve,an outward shift in the supply curve would be reflected primarily in the form of
A)higher prices.
B)higher output.
C)lower prices.
D)lower output.
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Chapter 10: General Equilibrium and Welfare
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Q1) Suppose country A has a production possibilities frontier such that \(4 x ^ { 2 } + 4 y ^ { 2 } = 500\) and country B has a production possibilities frontier such that \(x ^ { 2 } + 4 y ^ { 2 } = 500\) and consumers in each country view x and y as perfect substitutes.Country B will produce
A)only x (= \(\sqrt { 500 }\)
) and trade for y.
B)only y (= \(\sqrt { 125 }\) ) and trade for x.
C)both x (= 20) and y (= 5) and trade x to get y.
D)both x (= 20) and y (= 5) and trade y to get x.
Q2) Suppose two goods (X and Y )are being produced efficiently and that the production of X is always more labor intensive than the production of Y.Production depends only on two factors (capital and labor); these may be smoothly substituted for each other.The total quantities of these inputs are fixed.An increase in the production of X and a decrease in the production of Y will
A)increase the capital-labor ratio in each firm.
B)decrease the capital-labor ratio in each firm.
C)leave the capital-labor ratio for each firm unchanged.
D)increase the capital-labor ratio in Y production and decrease the capital-labor ratio in X production.
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Chapter 11: Monopoly
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Q1) If the government requires a natural monopoly to price at marginal cost,
A)monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good.
B)monopoly firms will operate at a loss because P < AC.
C)more firms will be able to enter the market.
D)producer surplus will increase because quantity supplied is greater.
Q2) The Soup Nut serves his signature minestrone soup in two different bowl sizes,large and small.What strategy should he use to extract the most surplus possible out of customers who come in two types,regular and big eaters,when he cannot distinguish between the two types by observation?
A)Distort the size of the small bowl downward to make it less attractive to the big eaters,allowing him to raise the price of the large bowl.
B)Distort the size of the large bowl downward to make it attractive to both big and regular eaters.
C)Distort the size of the small bowl upward to make it harder for regular eaters to separate themselves from big eaters.
D)Distort the size of the large bowl upward to make big eaters less likely to consume the small bowl.
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Chapter 12: Imperfect Competition
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Sample Questions
Q1) Suppose there are two firms,Boors and Cudweiser,each selling identical-tasting nonalcoholic beer.Consumers of this beer have no brand loyalty so market demand can be expressed as P = 5 - .001(QB + QC). Boors' marginal revenue function can be written MR = 5 - .001(2QB + QC)and symmetrically for Cudweiser. Boors operates with out-of-date technology and has constant cost of $2 per unit \(( M C = A C = 2 )\) whereas Cudweiser has constant cost of $1 per unit. Assuming the firms behave as Cournot competitors,Boor's best-response function is
A)QB = 2,000 - .5QC
B)QB = 1,500 - .5QC
C)QC = 2,000 - .5QB
D)QC = 1,500 - .5QB
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
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Chapter 13: Pricing in Input Markets
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Q1) An input's marginal revenue product is given by
A)the input's marginal expense times marginal revenue.
B)the input's marginal expense times the input's marginal physical productivity.
C)marginal revenue times the number of units employed.
D)the input's marginal physical productivity times marginal revenue of the firm's output.
Q2) When an individual's wage rises,the substitution 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) The fact that more women have chosen to work as real wages rise is evidence that,for them
A)leisure is an inferior good.
B)income and substitution effects of higher real wages work in the same direction.
C)income and substitution effects of higher real wages may work in opposite directions.
D)income and substitution effects may work in opposite directions but that the substitution effect is stronger.
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Chapter 14: Capital and Time
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Sample Questions
Q1) 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.
Q2) In the two-period utility maximization model the opportunity cost of one unit of C1 is A)one unit of C0.
B)1 + r units of C0.
C)1/(1 + r) units of C0.
D)cannot be determined without more information.
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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Chapter 15: Asymmetric Information
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Q1) The "lemons model" predicts quality deterioration in the used-car market because
A)used cars require increasing maintenance.
B)suppliers and demanders have different information about cars' quality.
C)used cars are generally of a lower quality than new cars.
D)people will usually buy new cars if they are available.
Q2) Return to the situation with the executive from the previous question. Now assume that shareholders cannot observe effort,so cannot specify how hard the executive works in the contract but must induce it through the incentive scheme. Which of the following wage contracts would work out best for shareholders in equilibrium?
A)A flat wage w = 2,500 with no profit share.
B)A share of 35% of the gross profits.
C)A share of 55% of the gross profits.
D)A share of 70% of the gross profits.
Q3) Which auction format generates the most revenue for the seller?
A)First price.
B)Second price.
C)They generate the same expected revenue.
D)Depends on the environment.
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Chapter 16: Externalities and Public Goods
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Q1) In perfect competition,environmental externalities need not distort the allocation of resources providing
A)transactions costs are zero.
B)average costs are constant for all output levels.
C)firms install pollution control equipment.
D)the government sets realistic pollution standards.
Q2) Bargaining costs are generally high in cases involving environmental externalities because
A)there are strong incentives to be a free rider.
B)many individuals may be affected by the externalities.
C)it is difficult to measure the costs of the externalities.
D)all of the above.
Q3) The "free-rider problem" of public goods refers to
A)individuals' refusal to pay taxes.
B)individuals' attempts to hide their preferences for collective goods and to avoid paying for them.
C)individuals' overuse of collective goods.
D)the inelasticity of individuals' demands for public goods.
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Chapter 17: Behavioral Economics
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Q1) Return to the case of Jan,the hyperbolic discounter from the previous question. Suppose she can sign a contract that requires her to give up money equivalent to a loss of X utils if she does not undertake the action. Assume she does not behave consistent with her plans without this contract. How high would the contractual value of X have to be to prevent her inconsistency?
A)C - B/2.
B)B.
C)C.
D)B + C.
Q2) Which of the following weights on utility (over four periods starting with the current one)provide an illustration of hyperbolic discounting that could well lead to inconsistent choices over time?
A)1,.5,.25,.125.
B)1,.25,.0625,.015625.
C)1,.8,.72,.648.
D)1,1,1,1.
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