Introduction to Microeconomics Exam Bank
Course Introduction
Introduction to Microeconomics offers a foundational exploration of how individuals, households, and firms make choices regarding the allocation of limited resources. The course examines key economic principles such as supply and demand, market equilibrium, elasticity, consumer behavior, and the theory of the firm. Students will learn to analyze how markets function, why they sometimes fail, and the role of government in influencing market outcomes. Emphasis is placed on applying these concepts to real-world situations, fostering critical thinking skills necessary for understanding everyday economic issues.
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Principles of Microeconomics 6th Canadain Edition by N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) In the 1990s,inflation in the United States was
A) very close to zero.
B) about 3 percent per year.
C) about 6 percent per year.
D) commonly referred to as "public enemy number one."
Answer: B
Q2) The opportunity cost of an item is
A) the number of hours needed to earn money to buy the item.
B) what you give up to get that item.
C) usually less than the dollar value of the item.
D) the dollar value of the item.
Answer: B
Q3) Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
A) There is no such thing as a free lunch.
B) People buy more when prices are low than when prices are high.
C) No matter how much people earn, they tend to spend more than they earn.
D) Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.
Answer: D
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Chapter 2: Thinking Like an Economist
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Q1) In a certain economy,toys and greeting cards are produced,and the economy currently operates on its production possibilities frontier.Which of the following events would allow the economy to produce more toys and more greeting cards,relative to the quantities of those goods that are being produced now?
A) The economy experiences economic growth.
B) There is a technological advance in the toy industry, but the greeting card industry experiences no such advance.
C) There is a technological advance in the greeting card industry, but the toy industry experiences no such advance.
D) All of the above are correct.
Answer: D
Q2) Refer to Figure 2-14.When this economy produces 30 doghouses and 25 dishwashers there is full employment.
A)True
B)False
Answer: False
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Chapter 3: Interdependence and the Gains from Trade
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Q1) Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks.Which of the following is not possible?
A) Jim has an absolute advantage in the production of baseball bats and in the production of hockey sticks.
B) Jim has an absolute advantage in the production of baseball bats and a comparative advantage in the production of hockey sticks.
C) Jim has an absolute advantage in the production of hockey sticks and a comparative advantage in the production of baseball bats.
D) Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.
Answer: D
Q2) Refer to Table 3-7.Japan should specialize in the production of A) cars and import airplanes.
B) airplanes and import cars.
C) both goods and import neither good.
D) neither good and import both goods.
Answer: A
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Chapter 4: The Market Forces of Supply and Demand
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Q1) Refer to Figure 4-18.At a price of $4,there is a
A) surplus of 3 units.
B) surplus of 6 units.
C) shortage of 3 units.
D) shortage of 6 units.
Q2) Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?
A) an increase in the price of wool shirts and a decrease in the price of raw cotton
B) a decrease in the price of wool shirts and a decrease in the price of raw cotton
C) an increase in the price of wool shirts and an increase in the price of raw cotton
D) a decrease in the price of wool shirts and an increase in the price of raw cotton
Q3) A movement along a supply curve is called a change in supply while a shift of the supply curve is called a change in quantity supplied.
A)True
B)False
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Chapter 5: Elasticity and Its Application
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Q1) For a particular good,a 5 percent increase in price causes a 15 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?
A) There are many substitutes for this good.
B) The good is a necessity.
C) The market for the good is broadly defined.
D) The relevant time horizon is short.
Q2) The price elasticity of demand for a good measures the willingness of A) consumers to buy less of the good as price rises.
B) consumers to avoid monopolistic markets in favor of competitive markets.
C) firms to produce more of a good as price rises.
D) firms to respond to the tastes of consumers.
Q3) The flatter the demand curve that passes through a given point,the more elastic the demand.
A)True
B)False
Q4) If demand is perfectly elastic,the demand curve is horizontal,and the price elasticity of demand equals 1.
A)True
B)False
Page 7
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Chapter 6: Supply, Demand, And Government Policies
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Q1) The minimum wage,if it is binding,lowers the incomes of A) no workers.
B) only those workers who become unemployed.
C) only those workers who have jobs.
D) all workers.
Q2) Refer to Figure 6-18.Sellers pay how much of the tax per unit?
A) $1.00.
B) $1.50.
C) $2.50.
D) $3.50.
Q3) Refer to Figure 6-17.In the after-tax equilibrium,how much revenue does the government collect from the tax on this good?
A) $210
B) $345
C) $420
D) $480
Q4) If a price floor is not binding,then it will have no effect on the market.
A)True
B)False
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Refer to Figure 7-12.When the price rises from P1 to P2,which area represents the increase in producer surplus due to new producers entering the market?
A) A
B) B
C) A+B
D) G
Q2) If the United States changed its laws to allow for the legal sale of a kidney,which of the following is least likely to occur?
A) The supply of kidneys would increase.
B) The shortage of kidneys would decrease.
C) Many lives would be saved.
D) The allocation of kidneys would be fair.
Q3) Which of the following statements is correct?
A) Buyers always want to pay less and sellers always want to be paid more.
B) Buyers always want to pay less and sellers always want to be paid less.
C) Buyers always want to pay more and sellers always want to be paid more.
D) Buyers always want to pay more and sellers always want to be paid less.
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Chapter 8: Application: The Costs of Taxation
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Q1) Refer to Figure 8-7.As a result of the tax,buyers effectively pay
A) $16 for each unit of the good, and sellers effectively receive $12 for each unit of the good.
B) $16 for each unit of the good, and sellers effectively receive $8 for each unit of the good.
C) $12 for each unit of the good, and sellers effectively receive $8 for each unit of the good.
D) $14 for each unit of the good, and sellers effectively receive $10 for each unit of the good.
Q2) Refer to Figure 8-5.The tax is levied on
A) buyers only.
B) sellers only.
C) both buyers and sellers.
D) This is impossible to determine from the figure.
Q3) Refer to Figure 8-8.The deadweight loss of the tax is the area
A) B+D.
B) C+F.
C) A+C+F+J.
D) B+C+D+F.
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Chapter 9: Application: International Trade
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Q1) Which of the following is not a commonly-advanced argument for trade restrictions?
A) the jobs argument
B) the national-security argument
C) the infant-industry argument
D) the efficiency argument
Q2) Refer to Figure 9-11.Producer surplus plus consumer surplus in this market after trade is
A) A + B.
B) A + B + C.
C) B + C + D.
D) A + B + C + D.
Q3) A logical starting point from which the study of international trade begins is
A) the recognition that not all markets are competitive.
B) the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C) the principle of absolute advantage.
D) the principle of comparative advantage.
Q4) How does an import quota differ from an equivalent tariff?
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Chapter 10: Externalities
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Q1) When producers operate in a market characterized by negative externalities,a tax that forces them to internalize the externality will
A) give sellers the incentive to account for the external effects of their actions.
B) increase demand.
C) increase the amount of the commodity exchanged in market equilibrium.
D) restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.
Q2) Technology spillover is one type of
A) negative externality.
B) positive externality.
C) subsidy.
D) producer surplus.
Q3) Refer to Table 10-4.Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?
A) a tax of $2 per unit of output
B) a subsidy of $2 per unit of output
C) a tax of $7 per unit of output
D) a subsidy of $7 per unit of output
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Chapter 11: Public Goods and Common Resources
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Q1) A sidewalk runs across Milton's front yard near the street.By law,anyone has the right to use the sidewalk.When Milton shovels the sidewalk after a heavy snow,he is providing a
A) good that is rival in consumption.
B) private good.
C) public good.
D) common resource.
Q2) In the Tragedy of the Commons,joint action among the individual citizens would be necessary to solve their common resource problem unless the government intervenes.
A)True
B)False
Q3) The Tragedy of the Commons occurs because
A) government property is most heavily used by the wealthy.
B) everyone deserves an equal share of government property.
C) social and private incentives differ.
D) established property rights create competition.
Q4) The pollution market failure is an example of the free rider problem.
A)True B)False
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Chapter 12: The Design of the Tax System
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Q1) One characteristic of an efficient tax system is that it minimizes the costs associated with revenue collection.
A)True
B)False
Q2) If we want to gauge the sacrifice made by a taxpayer,we should use the
A) average tax rate.
B) marginal tax rate.
C) lump-sum tax rate.
D) sales tax rate.
Q3) Which tax system requires higher-income taxpayers to pay a higher percentage of their income in taxes?
A) a progressive tax
B) a proportional tax
C) a regressive tax
D) a lump-sum tax
Q4) Which of the following is not an administrative burden of our tax system?
A) government resources used to enforce tax laws
B) keeping tax records throughout the year
C) paying the taxes owed
D) time spent in April filling out forms
Page 14
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Chapter 13: The Costs of Production
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Q1) In the long run,a firm that produces and sells electronic book readers gets to choose
A) how many workers to hire.
B) the size of its factories.
C) which short-run average-total-cost curve to use.
D) All of the above are correct.
Q2) There is general agreement among economists that the long-run time period exceeds one year.
A)True
B)False
Q3) If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output,then at five units of output,average total cost must be rising.
A)True
B)False
Q4) Refer to Table 13-7.What is the value of B?
A) $25
B) $50
C) $100
D) $200
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Chapter 14: Firms in Competitive Markets
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Q1) For a firm operating in a perfectly competitive industry,total revenue,marginal revenue,and average revenue are all equal.
A)True
B)False
Q2) Refer to Table 14-9.The maximum profit available to the firm is
A) $2.
B) $3.
C) $4.
D) $5.
Q3) Refer to Figure 14-5.In the short run,if the market price is P4,individual firms in a competitive industry will earn
A) positive profits.
B) zero profits.
C) losses but will remain in business.
D) losses and will shut down.
Q4) A firm operating in a perfectly competitive market may earn positive,negative,or zero economic profit in the long run.
A)True
B)False
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Chapter 15: Monopoly
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Q1) Refer to Scenario 15-2.Which of the following statements is most likely to be true? (i)New entrants to the market know they will have a smaller market share than MCM currently has.
(ii)MCM is most likely experiencing rising marginal cost.
(iii)MCM is most likely experiencing declining average total cost.
(iv)MCM is a natural monopoly.
A) (i) and (ii) only
B) (i) and (iii) only
C) (i), (iii) and (iv) only
D) (i), (ii), (iii), and (iv)
Q2) Refer to Table 15-3.The marginal cost of the 4th unit is
A) $7.
B) $12.
C) $25.
D) $60.
Q3) Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers.
A)True
B)False
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Chapter 16: Monopolistic Competition
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Q1) Refer to Figure 16-4.Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm?
A) panel a
B) panel b
C) panel c
D) All of the above are correct.
Q2) Refer to Scenario 16-4.On the basis of a theory that people buy a product because it is advertised,the content of advertisements for McDaniel's product
A) should focus on quality comparisons in order to be successful.
B) must include celebrity endorsements in order to be successful.
C) is critical to the success of the product in the market.
D) is irrelevant to the success of the advertisement.
Q3) Refer to Scenario 16-1.As a result of the new Escape Vacations hotel/resort,tourists who stay in Phoenix are likely to experience a
A) product-variety externality, which harms consumers.
B) product-variety externality, which benefits consumers.
C) business-stealing externality, which harms consumers.
D) business-stealing externality, which benefits consumers.
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Chapter 17: Oligopoly
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Q1) When price is above marginal cost,selling one more unit at the current price will increase profit.This concept is known as the
A) income effect.
B) price effect.
C) output effect.
D) cartel effect.
Q2) Refer to Scenario 17-3.If Zenya chooses to disarm its existing weapons,then Muria will A) disarm in order to increase its influence in world affairs.
B) disarm in order to promote world peace.
C) build new weapons in order to promote world peace.
D) build new weapons in order to increase its influence in world affairs.
Q3) Refer to Table 17-9.How much less do each of these firms earn in the Nash equilibrium than if they jointly maximize profits?
A) $250
B) $500
C) $750
D) $1000
Q4) Explain the practice of tying and discuss why it is controversial.
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Chapter 18: The Market For the Factors of Production
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Q1) Dan owns one of the many bakeries in New York City.Which of the following events will lead to an increase in Dan's demand for the services of bakers?
(i)The price of muffins increases.(Muffins are Dan's specialty.)
(ii)Dan adds three new ovens to the kitchen area to help the bakers work faster.
(iii)Local bakers form a union to protect themselves from low wages.
A) (i) and (ii) only
B) (ii) and (iii) only
C) (i) and (iii) only
D) (i), (ii), and (iii)
Q2) Refer to Table 18-10.What is the marginal profit of the fourth worker?
A) $25
B) $117
C) $350
D) $1,700
Q3) A firm's demand for labor is derived from its decision to supply a good in another market.
A)True
B)False
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Chapter 19: Earnings and Discrimination
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Q1) The idea of paying workers an efficiency wage is that
A) doing so is more efficient than paying them the market wage.
B) paying workers less gives them the incentive to work harder.
C) workers and management gain at the expense of the stockholders of the company.
D) workers have the incentive to work harder, thus increasing their marginal productivity.
Q2) Customer discrimination is illegal in the United States.
A)True
B)False
Q3) The "beauty premium" can be explained by the fact that
A) marginal productivity in all occupations has a physical dimension.
B) in some occupations, physical attractiveness of workers may enhance the value of their marginal product.
C) beauty acts as an implicit signal of innate intelligence.
D) beautiful people are likely to reflect "good breeding."
Q4) Efficiency wages may decrease employee turnover.
A)True
B)False
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Chapter 20: Income Inequality and Poverty
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Q1) The poverty rate is based on a family's
A) income, in-kind transfers, and other government aid.
B) income and in-kind transfers.
C) in-kind transfers only.
D) income only.
Q2) Economists who support minimum-wage legislation are likely to believe that the
A) demand for unskilled labor is relatively inelastic.
B) demand for unskilled labor is relatively elastic.
C) supply of unskilled labor is relatively elastic.
D) supply of unskilled labor is relatively inelastic.
Q3) Economists study poverty and income inequality in order to answer which of the following questions?
A) What are people's wages?
B) How does labor-force experience affect wages?
C) How much inequality is there in society?
D) How do people adjust their behavior due to taxation?
Q4) The utilitarian justification for redistributing income is based on the assumption of diminishing marginal utility.
A)True
B)False
Page 22
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Chapter 21: The Theory of Consumer Choice
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Q1) What are the two effects of a change in a price that a consumer experiences?
A) the income effect and the budget effect
B) the complement effect and the substitute effect
C) the price effect and the preference effect
D) the income effect and the substitution effect
Q2) Which of the following examples would illustrate a backward-sloping labor supply-curve?
A) An increase in a person's wages results in the person working fewer hours per week.
B) A decrease in a person's wages results in the person working more hours per week.
C) An increase in a person's wages results in the person working more hours per week.
D) Both a and b are correct.
Q3) A budget constraint shows
A) the maximum utility that a consumer can achieve for a given level of income.
B) a series of bundles that cost the consumer the same amount of money.
C) a series of bundles that give the consumer the same level of utility.
D) All of the above are correct.
Q4) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers in Microeconomics
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Q1) Refer to Table 22-11.Suppose voters first choose in a majority vote between W and X.Second,voters choose in a majority vote between the winner of the first vote and Y.Third,voters choose in a majority vote between the winner of the second vote and Z.Which alternative will win?
A) W
B) X
C) Y
D) Z
Q2) In his 1951 book Social Choice and Individual Values,Arrow's perfect voting system satisfies all of the following properties except A) unanimity.
B) transitivity.
C) reflexivity.
D) independence of irrelevant alternatives.
Q3) An example of signaling is a boyfriend giving an expensive,romantic gift to his girlfriend to convey his love for her.
A)True
B)False
Q4) Explain the Condorcet paradox.To which type of voting system does it apply?
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