Introduction to Microeconomics Exam Review
Course Introduction
Introduction to Microeconomics explores the fundamental principles that govern how individuals, firms, and societies make choices under conditions of scarcity. The course covers core concepts such as supply and demand, market equilibrium, elasticity, consumer and producer behavior, market structures (including perfect competition, monopoly, and oligopoly), and the impact of government interventions. Students will learn to analyze real-world economic problems, interpret graphical models, and understand how microeconomic theories apply to everyday decision-making and policy issues.
Recommended Textbook
Foundations of Microeconomics 6th Edition by Robin Bade Michael Parkin
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20 Chapters
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) The value of the best thing that a person must give up when making a decision is known as the ________ cost.
A)direct
B)benefit's
C)opportunity
D)explicit
E)sunk
Answer: C
Q2) Which of the following BEST describes macroeconomics?
A)It analyzes the aggregate effects on the national economy of the choices made by individuals, firms, and governments.
B)It studies the choices that individuals and businesses make when coping with scarcity.
C)It examines how the choices that individuals affect governments.
D)It is not a social science because its predictions cannot be tested.
E)Proving causation is never a problem for macroeconomics.
Answer: A
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Chapter 2: The Usand Global Economies
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Sample Questions
Q1) The majority of the value of production in the world economy is produced in
A)all of the developing economies taken together.
B)all of Africa and the Middle East taken together.
C)China and other Asian developing economies.
D)all of the advanced economies taken together.
E)all of the emerging market economies taken together.
Answer: D
Q2) Which factor of production does human capital enhance?
Iland
Iilabor
Iiicapital
A)i only
B)ii only
C)iii only
D)i and ii
E)i, ii, and iii
Answer: B
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) Which point in the figure above is an attainable combination that would have unemployed resources?
A)point A
B)point B
C)point C
D)point D
E)point A and point B
Answer: C
Q2) Gains from trade
A)occur when one party to the trade has an absolute advantage in both goods.
B)result in being able to consume beyond the trading individuals' production possibilities frontiers.
C)occur when people do not specialize.
D)occur when opportunity costs are equal.
E)always benefit one party but not the other party of any trade.
Answer: B
Q3) Are all points inside the production possibilities frontier unattainable?
Answer: No, all points within the production possibilities frontier are attainable, though there are unemployed resources at these points.
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) In the above figure, the shift in the supply curve from S to S might reflect
A)a decrease in the cost of the tomato sauce used to produce pizza.
B)a decrease in the number of pizza producers.
C)an increase in the price of a pizza.
D)an increase in income if pizza is a normal good.
E)an increase in the price of a good that is a substitute for consumers.
Q2) Which of the following increases the supply of gasoline?
A)a situation where the quantity of gasoline demanded exceeds the quantity supplied
B)an increase in the price of gasoline
C)a decrease in the price of a resource used to produce gasoline, such as crude oil
D)a decrease in the demand for gas-guzzling, sport utility vehicles
E)an increase in income if gas-guzzling, sport utility vehicles are a normal good
Q3) At prices above the equilibrium price, what occurs?
Q4) The above table gives the demand and supply schedules for cat food.What is the equilibrium price and quantity?
Q5) What is the difference between a normal good and an inferior good.Give an example of each.
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Page 6
Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) How are the cross elasticity of demand and income elasticity of demand similar and how are they different from the price elasticity of demand?
Q2) The cross elasticity between computers and software is
A)negative because they are substitutes.
B)positive because they are substitutes.
C)negative because they are complements.
D)positive because they are complements.
E)positive because they are normal goods.
Q3) All of the following statements are true EXCEPT
A)the demand for food is less elastic than the demand for a Hawaiian vacation.
B)the demand for clothing is less elastic than the demand for blue jeans.
C)the demand for gasoline is more elastic the longer the time elapsed.
D)the smaller the proportion of income spent on a good, the more inelastic demand will be.
E)the demand for Nike running shoes is less elastic than the demand for shoes.
Q4) Suppose the price of flour increases from $0.80 to $1.00 a pound and the quantity demanded decreases from 100 pounds to 95 pounds.Using the midpoint method, what is the price elasticity of demand for flour? Is the demand for flour elastic or inelastic?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) Suppose the nation is producing at a point on its PPF.If the marginal cost of producing one more computer is greater than the marginal benefit, the nation is producing
A)too few computers to be allocatively efficient.
B)too many computers to be allocatively efficient.
C)the correct number of computers to be allocatively efficient.
D)at the point of allocative efficiency.
E)More information is needed to determine if the nation is or is not producing at the allocatively efficient point.
Q2) A point on the demand curve shows the
A)price and the corresponding quantity demanded.
B)marginal benefit from that unit.
C)marginal cost to the seller of producing the unit.
D)Both answers A and B are correct.
E)Both answers A and C are correct.
Q3) "If there is an inefficient level of nursing care in South America, a deadweight loss exists." Is this statement true or false?
Q4) Briefly describe the concept of the "invisible hand."
Q5) According to the "fair rules" view of fairness, are taxes fair? Explain.
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) In the figure above, with the rent ceiling ________ units of housing are available, and black market rents might be as high as ________ a month.
A)3,000; $625
B)6,000; $400
C)3,000; $550
D)4,000; $550
E)4,000; $625
Q2) Why do some workers lose their job when the minimum wage is increased?
A)The increase in labor costs decreases the supply of the product, thereby raising the price of the good so that the equilibrium quantity decreases to zero.
B)The increase in the minimum wage decreases the quantity of labor demanded.
C)The demand for labor is perfectly inelastic.
D)The supply of labor decreases.
E)The demand for labor is perfectly elastic.
Q3) Who are minimum wages designed to help? Do they succeed? What is their effect on society?
Q4) Will an increase in the minimum wage create more unemployment if the supply and demand for labor are highly elastic or highly inelastic?
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Page 9
Chapter 8: Taxes
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Sample Questions
Q1) The marginal tax rate is the
A)average amount paid as taxes.
B)percentage of total income that is paid in tax.
C)percentage of an additional dollar of income paid in tax.
D)total amount of tax paid as a percentage of total income earned.
E)same as the average tax rate for a progressive tax.
Q2) Based on the figure above, after the tax is imposed, the price paid by the buyer is ________ per MP3 player.
A)$105
B)$100
C)$95
D)$110
E)$90
Q3) The excess burden of a tax refers to the fact that
A)the benefits from a tax exceed the tax revenue.
B)the deadweight loss from a tax exceeds the remaining consumer surplus.
C)marginal cost is greater than marginal benefit after the tax.
D)a tax creates a deadweight loss.
E)taxes are split between buyers and sellers.
Q4) "The only fair tax is a progressive tax." Comment on this assertion.
Page 10
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Chapter 9: Global Markets in Action
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Sample Questions
Q1) When a good is imported, the domestic production of it ________ and the domestic consumption of it ________.
A)increases; increases B)increases; decreases C)decreases; increases D)decreases; decreases E)increases; does not change
Q2) The fundamental force that generates international trade is A)the need for more goods and services.
B)absolute advantage.
C)the sea rule.
D)comparative advantage.
E)the existence of tariffs.
Q3) The United States imposes a tariff on foreign limes.How does the tariff affect the U.S.price of a lime and the production of limes in the United States?
Q4) Currently, the United States has a quota on the amount of sugar that is allowed to be imported into the United States.What would happen to the price of sugar in the United States if the quota was removed? What would happen to U.S.consumption and U.S.production of sugar?
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Chapter 10: Externalities
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Sample
Questions
Q1) Using the figure above, suppose a subsidy of $15,000 per student is provided to private colleges.When the market is in equilibrium, marginal social benefit ________ marginal cost, and the number of students enrolled is ________.
A)exceeds; above the efficient quantity
B)exceeds; below the efficient quantity
C)is below; above the efficient quantity
D)is below; below the efficient quantity
E)equals; efficient
Q2) The figure above shows a tax imposed on a good with an external cost.The area of the rectangle abcd equals
A)the MSB.
B)the total tax revenue collected by the government.
C)the amount of pollution tax per ton.
D)the MC.
E)the deadweight loss.
Q3) If the production of a good creates an external cost, is the supply curve the same as the marginal social cost or the same as the marginal private cost curve or both?
Q4) How has air quality changed in the United States since 1980?
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) The figure above shows the marginal cost and marginal benefit of police protection in the city of Hugo, Oklahoma.Police protection is a public good.If the city of Hugo hires 5 officers, marginal
A)cost exceeds marginal benefit, so therefore fewer officers should be hired.
B)benefit exceeds marginal cost, so therefore more officers should be hired.
C)benefit equals marginal cost.
D)benefit exceeds marginal cost, so therefore no more officers should be hired.
E)benefit exceeds marginal cost but not by as much as possible, so 5 officers is not the efficient number to be hired.
Q2) A private good is ________ and ________.
A)rival; excludable
B)rival; nonexcludable
C)nonrival; excludable
D)nonrival; nonexcludable
E)scarce; expensive
Q3) "The problem with a common resource is that no one gets to use the resource." Comment on the preceding assertion.
Q4) "The principle of increasing marginal cost does not apply to public goods." Is this statement correct or not?
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Chapter 12: Markets With Private Information
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Sample Questions
Q1) In the market for auto insurance, in a pooling equilibrium,
A)risky and safe drivers pay the same premium for insurance.
B)risky drivers pay a larger premium than do safe drivers for insurance.
C)risky drivers pay a smaller premium than do safe drivers for insurance.
D)risky drivers cannot obtain insurance.
E)safe drivers cannot obtain insurance.
Q2) Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because
A)a warranty on a lemon is costly to the seller.
B)warranties are only offered on lemons.
C)the signal cannot be false.
D)adverse selection means that warranties will not be used as a signal.
E)a false signal has no effect on the seller.
Q3) Which of the following has a positive externality and hence can be under provided?
A)chronically ill people are not allowed to buy insurance.
B)health insurance purchased through an employer
C)vaccination
D)Health Maintenance Organizations
E)None of the above have a positive externality.
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Page 14
Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) Suppose Alice spends her budget on books and downloaded movies.If her budget does not change and the price of a book stays the same but the price of a downloaded movie falls, her budget line
A)shifts outward and its slope does not change.
B)shifts inward and its slope does not change.
C)rotates inward and its slope changes.
D)rotates outward and its slope changes.
E)does not change because her budget has not changed.
Q2) If the price of the good measured on the x-axis becomes relatively cheaper, the budget line will
A)become vertical.
B)become steeper.
C)become flatter.
D)become horizontal.
E)shift rightward and not change its slope.
Q3) What is "marginal utility?"
Q4) What is the "principle of diminishing marginal utility"?
Q5) "Water is very inexpensive.Thus the marginal and total utility of water is small." Analyze the previous statements.
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Chapter 14: Production and Cost
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Sample Questions
Q1) As output increases, average total cost decreases
A)constantly.
B)as the average product of labor decreases.
C)initially and then starts to increase.
D)in the long run and the short run.
E)as long as average fixed cost decreases.
Q2) A firm's fundamental goal is
A)different for each firm.
B)to make a quality product.
C)to maximize profit.
D)to gain market share.
E)to decrease its employment of workers in order to cut its costs.
Q3) Costs paid in money to hire a resource is
A)normal profit.
B)an implicit cost.
C)an explicit cost.
D)an alternative-use cost.
E)economic profit.
Q4) What are diseconomies of scale and why might they occur?
Q5) What do economists mean when they say that a firm's plant is fixed?
Page 16
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Chapter 15: Perfect Competition
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Sample Questions
Q1) Based on the figure above, what is the price of a can?
A)$0
B)$8.00 per can
C)$5.10 per can
D)None of the above prices is correct.
E)More information is needed to determine the price of a can.
Q2) For a perfectly competitive rancher in Wyoming, if the price does not change, an economic profit could turn into an economic loss if the
A)average total cost curve shifts downward.
B)average total cost curve does not change.
C)average total cost curve shifts upward.
D)marginal cost curve shifts downward.
E)average fixed cost decreases.
Q3) The price for the shutdown point ________.
A)$5.14
B)between $3.01 and $5.13
C)$3.00
D)between $0 and $2.99
E)greater than $5.15
Q4) Describe how economic losses are eliminated in a perfectly competitive industry.
Page 17
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Chapter 16: Monopoly
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Sample
Questions
Q1) If a perfectly competitive industry is taken over by a single firm that operates as a single-price monopoly, the price will ________ and the quantity will ________.
A)fall, decrease
B)fall, increase
C)rise, decrease
D)rise, increase
E)not change; decrease
Q2) One way a company can cover its costs and, at the same time, obey a marginal cost pricing rule is by
A)choosing output levels according to the profit-maximizing rule.
B)using price discrimination.
C)increasing production.
D)decreasing production.
E)decreasing its marginal cost but not changing its average total cost.
Q3) "Under the social interest theory of regulation, regulators attempt to maximize profits for the owners of the firms being regulated." Is the previous statement correct or incorrect?
Q4) What is price discrimination?
Q5) Competition keeps prices lower for consumers.So why do we have patent laws?
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) Nike is a firm in monopolistic competition.If Nike is making an economic profit from new cross-training shoe, over time the demand for these shoes
A)increases as new firms enter the market.
B)decreases as new firms enter the market.
C)does not change as new firms enter the market.
D)decreases as firms exit the market.
E)increases as firms exit the market.
Q2) Concentration ratios
A)refer to the concentration of customers in a certain area.
B)measure whether the market is dominated by a small number of firms.
C)measure the concentration of a large number of firms in a certain area.
D)have high values for perfect competition.
E)measure how concentrated a firm's sales are among certain types of goods.
Q3) Why are firms in monopolistic competition unable to make an economic profit in the long run?
Q4) What is the difference between a four-firm concentration ratio and a Herfindahl-Hirschman Index?
Q5) For a firm in monopolistic competition, define efficient scale and excess capacity.Briefly explain each.
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Chapter 18: Oligopoly
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Sample Questions
Q1) What market structures other than oligopoly have the characteristic of one firm's actions affecting the actions of its competitors? Explain your answer.
Q2) The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as a monopoly, there are ________ minutes of calls made per hour.
A)between 0 and 3 million
B)more than 3 million and less than or equal to 5 million
C)more than 5 million and less than or equal to 7 million
D)more than 7 million and less than or equal to 9 million
E)more than 9 million
Q3) One way to identify oligopoly is to
A)determine the market's minimum price.
B)determine the market's maximum price.
C)determine whether the firm's ATC exceeds price.
D)use the Herfindahl-Hirschman Index (HHI).
E)use the Efficiency test.
Q4) Why are cartels among firms usually kept secret?
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) The supply of labor curve shifts leftward if
A)the population increases.
B)the demand for labor curve shifts leftward.
C)the supply of labor increases.
D)the wage rate falls.
E)the supply of labor decreases.
Q2) An increase in the rental rate of capital ________ the quantity of capital demanded and ________ the quantity of capital supplied.
A)increases; increases
B)increases; decreases C)decreases; increases D)decreases; decreases
E)does not change; does not change
Q3) An individual's labor supply curve eventually bends backward because at a high enough wage rate,
A)people are willing to work more hours.
B)employers are willing to hire more workers.
C)people desire more leisure time.
D)very few workers are hired.
E)more people enter the labor market to search for jobs.
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Chapter 20: Economic Inequality
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Sample Questions
Q1) Suppose a supply curve for high-skilled labor is drawn in the same graph as a supply curve for low-skilled labor.The vertical distance between these two curves represents the A)wage rate paid to a high-skilled worker.
B)wage rate paid to a low-skilled worker.
C)compensation the high-skilled worker requires for the cost of acquiring the skill.
D)number of high-skill workers that will be hired.
E)difference in the value of marginal product between the high-skilled workers and the low-skilled workers.
Q2) The wage differential between high-skilled and low-skilled workers is the result of A)a difference in the value of marginal product.
B)the cost of acquiring skills.
C)a negative income tax.
D)Both answers A and B are correct.
E)Both answers B and C are correct.
Q3) At any wage rate, the quantity of welders willing to work is less than the quantity of tomato pickers.Why?
Q4) What is "human capital" and why is it considered an investment?
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