Introduction to Microeconomics
Exam Materials
Course Introduction
Introduction to Microeconomics explores the fundamental principles that govern individual and firm decision-making in the context of scarce resources. The course examines how markets function, how prices are determined through the interactions of supply and demand, and how consumers and producers respond to economic incentives. Key topics include elasticity, consumer behavior, production costs, market structures (such as perfect competition, monopoly, and oligopoly), and the role of government in the economy. By the end of the course, students will be equipped with analytical tools to understand real-world economic issues and make informed decisions.
Recommended Textbook
Microeconomics 3rd Edition by R.
Glenn Hubbard
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16 Chapters
3331 Verified Questions
3331 Flashcards
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Chapter 1: Economics Foundations and Models
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160 Flashcards
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Sample Questions
Q1) Marginal benefit refers to the additional benefit that your activity provides to you.
A)True
B)False
Answer: True
Q2) What is the 'omitted variable' problem in determining cause and effect?
A) It is a problem that arises when an insignificant variable is given too much weight in an economic analysis, leading to skewed conclusions about cause and effect.
B) It is a problem that arises when a significant variable is not given enough weight in an economic analysis, leading to skewed conclusions about cause and effect.
C) It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic analysis, leading to false conclusions about cause and effect.
D) It is a problem that arises when an economic variable that affects other variables is omitted from an analysis, and its omission leads to false conclusions about cause and effect.
Answer: D
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3
Chapter 2: Choices and Trade - Offs in the Market
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Sample Questions
Q1) The attainable production points on a production possibility curve are
A) the horizontal and vertical intercepts.
B) the points along the production possibility frontier.
C) the points outside the area enclosed by the production possibility frontier.
D) the points along and inside the production possibility frontier.
Answer: D
Q2) Scarcity
A) stems from the incompatibility between limited resources and unlimited wants. B) can be overcome by discovering new resources.
C) can be eliminated by rationing products.
D) is a bigger problem in market economies than in socialist economies.
Answer: A
Q3) What shape does a production possibility frontier take if it displays increasing opportunity costs? What shape does a production possibility frontier take if it displays constant opportunity costs? Which shape is most common in production situations?
Answer: A production possibility frontier which displays increasing opportunity costs is bowed out. A production possibility frontier which displays constant opportunity costs is linear. A bowed out production possibility frontier is most common in production situations.
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Page 4
Chapter 3: Where Prices Come Frome : The Interaction of
Demand and Supply
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Sample Questions
Q1) If the price of a product is above equilibrium, what forces it down?
Answer: When the price is above equilibrium, a surplus occurs. Some producers who are unable to sell the product will have an incentive to offer to sell the product at a lower price. A lower price will simultaneously decrease the quantity supplied and increase the quantity demanded. This downward pressure on price continues until the surplus is eliminated and equilibrium is achieved.
Q2) Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie,
A) raspberries and papayas are complements.
B) raspberries and papayas are inferior goods.
C) raspberries and papayas are normal goods.
D) raspberries and papayas are substitutes.
Answer: D
Q3) Refer to Figure 3-5. At a price of $15,
A) there would be a surplus of 4 units.
B) there would be a shortage of 2 units.
C) there would be a surplus of 6 units.
D) there would be a shortage of 4 units.
Answer: A
Page 5
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Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose when Nablom's Bakery raised the price of its breads by 10 per cent, the quantity demanded fell by 15 per cent. What was the effect on sales revenue?
A) Sales revenue increased.
B) Sales revenue remained unchanged.
C) Sales revenue decreased.
D) It cannot be determined without information on prices.
Q2) According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?
A) The toothpaste industry is highly competitive.
B) Toothpaste is relatively inexpensive.
C) Toothpaste is heavily endorsed by dentists.
D) There are few close substitutes for toothpaste.
Q3) Which of the following is a key determinant of the price elasticity of supply?
A) the slope of the supply curve
B) the availability of substitutes in production
C) the available technology
D) the time it takes to change output in response to a change in price
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Chapter 5: Economic Efficiency , Government Price Setting and Taxes
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Sample Questions
Q1) Refer to Figure 5-5. Suppose that instead of a rent ceiling, the government imposed a price floor of $2000 per month for apartments. What is the value of the deadweight loss after the imposition of the price floor?
A) $50 000
B) $125 000
C) $175 000
D) $260 000
Q2) The sum of consumer surplus and producer surplus is called economic surplus. A)True B)False
Q3) The total amount of consumer surplus in a market is equal to the area below the demand curve.
A)True B)False
Q4) Refer to Figure 5-1. What is the total amount that Arnold is willing to pay for 2 burritos?
A) $2.00
B) $4.50
C) $7.50
D) $10.00
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Chapter 6: Concumer Choice and Behavioural Economics
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Sample Questions
Q1) Some economists have argued that path dependency and switching costs can lead to market failure. Which of the following is an example of this argument?
A) Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity.
B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3000 even though he would not have paid $3000 for a ticket if he had not won the lottery.
C) While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself.
D) VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.
Q2) The amount of income a consumer has to spend on goods and services is known as A) purchasing power.
B) effective demand.
C) a budget constraint.
D) wealth.
Q3) Describe the demand curve for a Giffen good.
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Chapter 7: Technology , Production and Costs
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Sample Questions
Q1) Refer to Figure 7-6. In the figure above, which letter represents the average total cost curve?
A) A
B) B
C) C
D) D
Q2) Refer to Table 7-1. Diminishing marginal returns sets in when the ________ worker is hired.
A) 2nd
B) 3rd
C) 4th
D) None of the above; the production function displays increasing marginal returns.
Q3) Refer to Figure 7-7. When output level is 100, what is the total cost of production?
A) $20
B) $1000
C) $1200
D) $2000
Q4) What is an isocost line? What is the slope of an isocost line?
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Chapter 8: Firms in Perfectly Compitive Markets
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Sample Questions
Q1) Assume that the LCD and plasma television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?
A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate.
B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits.
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.
D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.
Q2) What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?
Q3) What is meant by the term 'long-run competitive equilibrium'?
Q4) Under what conditions should a competitive firm shut down in the short run?
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) Refer to Figure 9-12. Why won't regulators require that ETSA Power produce the economically efficient output level?
A) because there is insufficient demand at that output level
B) because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit
C) because Erickson Power will earn zero profit
D) because Erickson Power will sustain persistent losses and will not continue in business in the long run
Q2) Refer to Figure 9-10. What is the area that represents consumer surplus under a monopoly?
A) the triangle P<sub>0</sub>P<sub>1</sub>F
B) the triangle P<sub>0</sub>P<sub>2</sub>E
C) the trapezium P<sub>1</sub>P<sub>2</sub>EF
D) the rectangle P<sub>1</sub>P<sub>3</sub>HF
Q3) A monopolist faces
A) a perfectly elastic demand curve.
B) a perfectly inelastic demand curve.
C) a horizontal demand curve.
D) a downward-sloping demand curve.
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Chapter 10: Monopolistic Competition : The Competitive Model
in More Realistic Setting
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Sample Questions
Q1) Refer to Table 10-1. The table shows
A) an elastic segment of the demand curve.
B) an inelastic segment of the demand curve.
C) a demand curve with an elastic segment from $7.50 to $6.50 followed by an inelastic segment.
D) a demand curve with an inelastic segment from $7.50 to $6.50 followed by an elastic segment.
Q2) Refer to Table 10-2. What is the marginal profit from producing and selling the 5th case?
A) $275
B) $145
C) $35
D) $20
Q3) Brand management refers to
A) picking a brand name for a new product that will attract attention.
B) the efforts to maintain the differentiation of a product over time.
C) efforts to reduce the cost of production.
D) selling the right to use a brand name in a particular market.
Q4) What is meant by 'excess capacity'? How does it relate to consumer utility?
Q5) Why are many companies concerned about brand management?
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Chapter 11: Oligopoly : Firms in Less Competitve Markets
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Sample Questions
Q1) Oligopolies are difficult to analyse because
A) the firms are so large.
B) demand and cost curves do not exist for these types of industries.
C) how firms respond to a price change by a rival is uncertain.
D) oligopolies are a recent development so economists have not had time to develop models.
Q2) A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself better off by changing his decision at any decision node.
A)True
B)False
Q3) Competition in the form of advertising, better customer service, or longer warranties can also reduce profits by raising costs.
A)True
B)False
Q4) All of the following are characteristics of game theory except A) rules that determine what actions are allowable.
B) payoffs that are the results of the interaction among players' strategies.
C) strategies that players employ to attain their objectives.
D) independence among players.
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Chapter 12: The Market for Labour and Other Factors of Production
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Sample Questions
Q1) If a stock's dividend is expected to grow at a constant rate of eight per cent in the future and it has just paid a dividend of $1.25 a share, and you have an alternative investment of equal risk that will earn a 12 per cent rate of return, what would you be willing to pay per share for this stock?
A) $31.25
B) $1.40
C) $1.25
D) $1.12
Q2) What is the present value of $575 in a one year if the current rate of interest is 4 per cent?
A) $410.71
B) $552.88
C) $598
D) $805
Q3) If the market wage rate increases, a firm's labour demand curve does not shift, but the labour supply curve shifts to the right.
A)True
B)False
Q4) What is a compensating differential?
Page 14
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Chapter 13: International Trade
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Sample Questions
Q1) What does it mean for a country to have an absolute advantage in producing a product?
Q2) Selling a product at a price below its cost is known as dumping.
A)True
B)False
Q3) Refer to Table 13-3. Select the statement that accurately interprets the data in the table.
A) Tina has a comparative advantage in making candles.
B) Bryce has an absolute advantage in making soap.
C) Bryce has a comparative advantage in making candles.
D) Bryce has a comparative advantage in making candles and making soap.
Q4) The selling of a product for a price below its cost of production is called A) fair competition.
B) dumping.
C) unfair competition.
D) operating at a loss.
Q5) One reason a country does not specialise completely in production is that not all goods and services are traded internationally.
A)True
B)False
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) One reason why adverse selection problems arise in health insurance markets is that
A) sick people are more likely to want health insurance than healthy people.
B) because of advances in medical technology, people are living longer. These medical advances are costly and drive up the price of insurance for everyone.
C) the average age of citizens of the United States has increased in recent years, and will continue to increase over the next 20 to 30 years. As older citizens retire, more and more of their medical bills will have to be paid by younger workers.
D) fewer men and women are choosing medical careers because of the increase in the cost of malpractice insurance.
Q2) It is difficult for a private market to provide the economically efficient quantity of a public good because
A) by law, governments cannot use cost-benefit analysis to determine this quantity.
B) public goods produce positive and negative externalities.
C) individual preferences are not revealed in the market for the good.
D) it is too expensive to produce the necessary amount of the good.
Q3) What is rent seeking and how is it related to regulatory capture?
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Chapter 15: Externalities , Environmental Policy and Public Goods
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Sample Questions
Q1) Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities?
A) Ronald Coase
B) A. C. Pigou
C) Adam Smith
D) David Hume
Q2) An advantage of imposing a tax on the producer that generates pollution is that
A) it forces the polluting producer to internalise the external cost of the pollution.
B) the government can keep tabs on exactly what is produced in an industry.
C) it will eliminate pollution.
D) a producer can pass the cost of the pollution to consumers.
Q3) Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.
A) necessary; equitable
B) necessary; efficient
C) not necessary; equitable
D) not necessary; efficient
Page 17
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) If you pay $2000 in taxes on an income of $20 000, and a tax of $3000 on an income of $30 000, then over this range of income the tax is
A) regressive.
B) proportional.
C) progressive.
D) There is insufficient information to answer the question.
Q2) A regressive tax is a tax for which people with lower incomes
A) pay a lower percentage of their incomes in tax than do people with higher incomes.
B) pay a higher percentage of their incomes in tax than do people with higher incomes.
C) pay the same percentage of their incomes in tax as do people with higher incomes.
D) do not have to pay unless their incomes exceeds a certain amount.
Q3) An average tax rate is calculated as
A) total taxable income × taxes paid.
B) total taxable income ÷ taxes paid.
C) taxes paid ÷ total taxable income.
D) (total taxable income - taxes paid) ÷ taxable income.
Q4) What is a Lorenz curve and what is a Gini coefficient?
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