Introduction to Microeconomics Exam Bank
Course Introduction
Introduction to Microeconomics explores the fundamental principles and concepts underlying the behavior of individuals and firms within market economies. The course examines how scarce resources are allocated through the mechanisms of supply and demand, the role of prices in coordinating economic activity, and how various market structures affect efficiency and welfare. Core topics include consumer choice, production and costs, market equilibrium, elasticity, and the impact of government policies such as taxation and regulation. Students will gain analytical tools to understand real-world economic issues and learn how microeconomic theory applies to everyday decisions and public policy.
Recommended Textbook
Microeconomics Student Value 4th Edition by
R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) Which of the following are positive economic statements and which are normative economic statements?
a.An increase in the minimum wage causes unemployment.
b.The government should raise the minimum wage above $7.25 per hour.
c.The prolonged recession has caused the unemployment rate to reach a 30-year high.
d.Interest rates need to be lower for the economy to emerge from the recession.
e.Inflation has decreased since the onset of the recession.
f.Once the recession has ended,interest rates should increased to assure that inflation does not go up.
Answer: Statements a,c,and e are positive economic statements.Statements b,d,and f are normative economic statements.
Q2) Refer to Scenario 1-1.Using marginal analysis terminology,what is another economic term for the incremental cost of producing the last 400 t-shirts?
A)marginal cost
B)operating cost
C)explicit cost
D)Any of the above terms are correct.
Answer: A
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Q1) In the desire to have a celebrity's image protected to prevent it from being used in ways he would not approve,a celebrity's estate
A)will probably not be successful,since there are no laws regulating this kind of use in the United States.
B)will have to be granted a patent declaring the celebrity's image a new product,and this will give the estate protection for 7 years.
C)can rely on U.S.laws that protect intellectual property rights to prevent the unauthorized use of his image.
D)will most likely be more successful in developing countries than in high-income countries,since property regulations are better enforced in developing countries.
Answer: C
Q2) Which of the following statements about an entrepreneur is true?
A)purchases other factors of production in the output market
B)develops the vision for the firm and funds the producing unit
C)sells his entrepreneurial services in the output market
D)does not face personal risk
Answer: B
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Market equilibrium occurs where the quantity supplied is equal to the quantity demanded.
A)True
B)False
Answer: True
Q2) Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005.As a result of this,many gasoline distributors were not able to maintain normal deliveries.At the pre-hurricane equilibrium price (i.e.,at the initial equilibrium price),we would expect to see
A)a surplus of gasoline.
B)the quantity demanded equal to the quantity supplied.
C)a shortage of gasoline.
D)an increase in the demand for gasoline.
Answer: C
Q3) What are the five most important variables that shift the market supply curve?
Answer: Prices of inputs; Technological change; Prices of substitutes in production; The number of firms in the market; Expected future prices
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) In a competitive market when there is no deadweight loss,
A)consumer surplus is minimized.
B)producer surplus is minimized.
C)consumer surplus plus producer surplus is minimized.
D)consumer surplus plus producer surplus is maximized.
Q2) The difference between the ________ for a good and the ________ is called consumer surplus.
A)highest price a consumer is willing to pay; lowest price a consumer is willing to pay
B)lowest price a consumer is willing to pay; price the consumer actually pays
C)highest price a consumer is willing to pay; price the consumer actually pays
D)price the consumer actually pays; actual cost to the producer
Q3) The division of the burden of a tax between buyers and sellers in a market is called tax incidence.
A)True
B)False
Q4) What is consumer surplus? Why would policy makers be interested in consumer surplus?
Q5) Is there a difference between the "true burden" of a tax and who is legally required to pay a tax? Briefly explain.
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) The free rider problem refers to a situation in which
A)people consume a pure public good without payment,even though the good may not be produced if no one chooses to pay.
B)the marginal cost of allowing additional consumers to consume a public good is zero.
C)high income individuals subsidize the production of goods,such as education,that make society better off.
D)markets fail to allocate resources efficiently when benefits outweigh costs.
Q2) What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?
Q3) Refer to Figure 5-2.If,because of an externality,the economically efficient output is Q<sub>2</sub> and not the current equilibrium output of Q<sub>1</sub>,what does D<sub>2</sub> represent?
A)the demand curve reflecting external benefits
B)the demand curve reflecting social benefits
C)the demand curve reflecting private benefits
D)the demand curve reflecting the sum of social and external benefits
Q4) How does a positive externality in consumption reduce economic efficiency?
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) Barbara,the consummate hostess,proudly announced as she served dessert,"A port is often the perfect end to a meal,sipped with a piece of my scrumptious chocolate cake." Evidently,Barbara views
A)port and chocolate cake as luxury items.
B)port and chocolate cake as necessities.
C)port and chocolate cake as complementary goods.
D)port and chocolate cake as substitutes to other desserts.
Q2) In 2001,the prices of VHS movie tapes were practically identical while DVD prices for different movie titles varied considerably.What explanation can be given for this?
A)In 2001,VHS tapes were inferior goods while DVDs were luxuries.
B)In 2001,most VHS tapes were sold by discount retailers such as Wal-Mart; most DVDs were sold online.
C)In 2001,the price elasticity demand for VHS tapes was inelastic; for DVDs the price elasticity of demand was elastic.
D)In 2001,movie studies had determined their pricing strategies for VHS tapes but were unsure of the price elasticities of DVDs.
Q3) Briefly explain the economic concept of elasticity.
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Chapter 7: The Economics of Health Care
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Q1) Of the following high-income countries,which has the highest mortality ratio for cancer?
A)Canada
B)Japan
C)the United Kingdom
D)the United States
Q2) Compared to the United States,health care spending per person in other high-income countries has been
A)growing at a slower rate.
B)growing at a faster rate.
C)growing at approximately the same rate.
D)declining at approximately the same rate.
Q3) What is asymmetric information?
Q4) Under the Patient Protection and Affordable Care Act (PPACA),every company with more than 200 employees must offer health insurance to its employees and must automatically enroll them in the plan.
A)True
B)False
Q5) How can increases in a country's total income improve health?
Q6) How do adverse selection and moral hazard affect the market for insurance?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Q1) You have a bond that pays $60 per year in coupon payments.Which of the following would result in a decrease in the price of your bond?
A)Coupon payments on newly-issued bonds fall to $40 per year.
B)The likelihood that the firm issuing your bond will default on debt decreases.
C)The price of a share of stock in the company rises.
D)Coupon payments on newly-issued bonds rise to $75 per year.
Q2) The value you give today to money you will receive in the future is called the future payment's
A)time-sensitive value.
B)future value.
C)present value.
D)historical value.
Q3) Members of management serving on the board of directors of a corporation are referred to as outside directors.
A)True
B)False
Q4) With state and multistate lotteries,winners are typically given the choice between a lump sum payment today or a 20 year series of annuities.How should a winner decide which is better?
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Which of the following statements about the importance of trade to the U.S.economy is false?
A)Since 1950,both exports and imports have steadily increased as a fraction of U.S.gross domestic product.
B)Overall,about 20 percent of U.S.manufacturing jobs depend directly or indirectly on exports.
C)The United States is the largest exporter in the world.
D)The U.S.economy is highly dependent on international trade for growth in its gross domestic product.
Q2) A quota is
A)a limit placed on the quantity of goods that can be imported into a country.
B)a tax imposed by a government on goods imported into a country.
C)a subsidy granted to importers of a vital input.
D)a health and safety restriction imposed on an imported product.
Q3) Refer to Figure 9-3.What is the value of domestic producer surplus without a quota?
A)$5 million
B)$15.75 million
C)$38.5 million
D)$53.5 million
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Q1) One reason that consumers and businesses might not act rationally is
A)it is difficult to obtain enough information about the elasticities of demand and supply.
B)they may not realize their actions are inconsistent with their goals.
C)consumer tastes change constantly.
D)they do not always value fairness when they make choices.
Q2) Refer to Table 10-5.What is Jay's optimal consumption bundle?
A)1 burger and 2 Pepsis
B)2 burgers and 3 Pepsis
C)3 burgers and 1 Pepsi
D)3 burgers and 2 Pepsis
Q3) ________ is an experiment that tests the significance of fairness in consumer decision making.
A)The fairness challenge
B)The consumer choice paradigm
C)The ultimatum game
D)The Giffen paradox
Q4) The demand for a Giffen good slopes upward.
A)True
B)False
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Chapter 11: Technology, production, and Costs
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Q1) Jill Johnson owns a pizzeria.She currently produces 10,000 pizzas per month at a total cost of $500.If she produced one more pizza her total cost rises to $500.11.What does this tell us about Jill's marginal cost of producing pizzas?
A)The marginal cost of producing pizzas is constant.
B)The marginal cost of producing pizzas is falling.
C)The marginal cost of producing pizzas cannot be determined without more information.
D)The marginal cost of producing pizzas is rising.
Q2) The slope of an isoquant is equal to the ratio of the price of the input on the horizontal axis divided by the price of the input on the vertical axis,multiplied by -1.
A)True
B)False
Q3) In the long run
A)the firm's fixed costs are greater than its fixed costs in the short run.
B)all of the firm's costs are explicit costs; there are no implicit costs of production.
C)the firm is more profitable than it is in the short run.
D)all of the firm's costs are variable costs.
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.
A)True
B)False
Q2) Refer to Figure 12-6.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits,and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?
A)Panel A
B)Panel B
C)Panel C
D)Panel D
Q3) Refer to Figure 12-5.Total revenue at the profit-maximizing level of output is A)$1,200.
B)$2,500.
C)$4,800.
D)$6,000.
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Firms use two marketing tools to differentiate their products.What are these two tools?
A)lobbying and word of mouth
B)market research and demand estimation
C)brand management and advertising
D)consumer surveys and market experiments
Q2) If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases then
A)the output effect of the price change was less than the price effect.
B)the output effect of the price change was greater than the price effect.
C)the firm's demand curve must have decreased.
D)the substitution effect of the price change was greater than the income effect.
Q3) The demand curve of a monopolistically competitive firm
A)is horizontal because the firm must cut its price to sell more.
B)is perfectly elastic.
C)is downward-sloping because it sells an identical product.
D)is downward-sloping because it must cut its price to sell more.
Q4) Why are many companies concerned about brand management?
Q5) What is meant by "excess capacity"? How does it relate to consumer utility?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) A large majority of the personal computers (PCs)in the United States use an operating system purchased from Microsoft.Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?
A)the threat from new entrants
B)the bargaining power of suppliers
C)the bargaining power of buyers
D)competition from substitute goods or services
Q2) Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.
A)True
B)False
Q3) Refer to Table 14-5.If the firms cooperate,what prices will they select?
A)Both firms will select a low price.
B)Brawny Juice will select a high price,Power Fuel a low price.
C)Both firms will select a high price.
D)Brawny Juice will select a low price,Power Fuel a high price.
Q4) Most economists are concerned about entry barriers.Why is this so important to them?
Q5) Firms in an oligopoly are said to be interdependent.What does this mean?
Page 16
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Chapter 15: Monopoly and Antitrust Policy
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Q1) If the OpenTable Website was a natural monopoly,dividing the business equally between two firms that each supplied the same number of online reservations would
A)decrease marginal cost.
B)raise average total cost.
C)increase total revenue.
D)make marginal revenue less elastic.
Q2) A price maker is
A)a person who actively seeks out the best price for a product that he or she wishes to buy.
B)a firm that has some control over the price of the product it sells.
C)a firm that is able to sell any quantity at the highest possible price.
D)a consumer who participates in an auction where she announces her willingness to pay for a product.
Q3) Equilibrium in a perfectly competitive market results in the greatest amount of economic surplus,or total benefit to society,from the production of a good.Why,then,did Joseph Schumpeter argue that an economy may benefit more from firms that have market power than from firms that are perfectly competitive?
Q4) Identify four reasons for high entry barriers? Briefly explain each reason.
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Chapter 16: Pricing Strategy
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Q1) Refer to Figure 16-2.If Sensei charges the competitive price for his classes,what is the maximum amount of admission fee that he can collect from his customers?
A)the area A + B
B)the area A + B + C + D
C)the area A + B + C + D + E
D)the area A + C + D + G + H
Q2) There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.
A)True
B)False
Q3) If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?
A)15 percent
B)20 percent
C)25 percent
D)40 percent
Q4) What conditions are required for a firm to use a price discrimination strategy?
Q5) Are restaurant coupons a form of price discrimination? Why or why not?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Why are there superstar baseball players but no superstar chiropractors?
Q2) Because leisure is a normal good,an increase in the wage rate will result in
A)an increase in the quantity of labor supplied because of both the substitution effect and the income effect.
B)a decrease in the quantity of labor supplied because of the substitution effect and an increase in the quantity of labor supplied because of the income effect.
C)an increase in the quantity of labor supplied because of the substitution effect and a decrease in the quantity of labor supplied because of the income effect.
D)an increase in the quantity of labor supplied because of the substitution effect.At low wages the income effect causes an increase in the quantity of labor supplied,but at high wages the income effect causes a decrease in the quantity of labor supplied as the wage rises.
Q3) The equilibrium level of employee compensation is determined by
A)the supply of labor and the supply of goods and services.
B)the demand for labor and the demand for goods and services.
C)the supply of goods and services and the demand for goods and services.
D)the supply of labor and the demand for labor.
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.
A)True
B)False
Q2) Suppose the government wants to finance housing for low-income families by placing a tax on the purchase of luxury homes.Assume the government defines a luxury home as a home that is purchased for at least $1 million.This tax is consistent with the
A)benefits-received principle.
B)social equity principle.
C)ability-to-pay principle.
D)horizontal-equity principle.
Q3) Refer to Figure 18-1.Area B+C represents
A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.
Q4) What is rent seeking and how is it related to regulatory capture?
Q5) What is a Lorenz curve and what is a Gini coefficient?
Q6) What is the difference between the poverty line and the poverty rate?
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