Introduction to Microeconomics Exam Solutions
Course Introduction
Introduction to Microeconomics explores the foundational principles governing individual economic behavior, market systems, and resource allocation. Students will examine how consumers and firms make decisions, the role of supply and demand in price determination, and the impact of government interventions on market outcomes. The course covers elasticity, consumer and producer surplus, market structures such as perfect competition and monopoly, and the factors that influence market efficiency and failures. Through real-world examples and analytical tools, students gain an understanding of how microeconomic theory applies to everyday economic issues and policy debates.
Recommended Textbook
Microeconomics 10th Edition by William Boyes
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22 Chapters
2295 Verified Questions
2295 Flashcards
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Page 2
Chapter 1: The Wealth of Nations: Ownership and Economic Freedom
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87 Verified Questions
87 Flashcards
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Sample Questions
Q1) Which economic concept is the closest to the saying, "There's no such thing as a free lunch"?
A)Specialization
B)Unlimited wants
C)Underutilization of resources
D)Opportunity costs
E)Overutilization of resources
Answer: D
Q2) Villagers in Xiaogang, China, produced more rice than those in surrounding villages because:
A)they had better farmland.
B)they were given better seeds.
C)they were able to keep the output they produced individually.
D)they made each family responsible for a certain, higher quota of rice production.
E)they had common ownership over the rice produced.
Answer: C
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) If an individual can produce a good or service with a lower opportunity cost than another individual, then he or she is said to have the comparative advantage.
A)True
B)False
Answer: True
Q2) Refer to Table 2.4. If the countries were to engage in trade, what would be the most Ohio would be willing to pay for 1 chili?
A)4 cookies
B)8 cookies
C)1/4 of a cookie
D)1/8 of a cookie
E)6 cookies
Answer: C
Q3) Specialization and trade do not allow individuals, firms, or even nations to acquire goods that lie beyond their production capabilities.
A)True
B)False
Answer: False
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Chapter 3: Markets and the Price System
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) If the price of hot dogs were to decrease, which of the following changes would we expect to occur in the hot dog bun market?
A)The equilibrium price of hot dog buns would decrease and the quantity of hot dog buns sold would increase.
B)The equilibrium price of hot dog buns would increase and the quantity of hot dog buns sold would decrease.
C)The equilibrium price of hot dog buns would increase and the quantity of hot dog buns sold would increase.
D)The equilibrium price of hot dog buns would decrease and the quantity of hot dog buns sold would decrease.
E)The equilibrium price of hot dog buns would stay the same and the quantity of hot dog buns sold would increase.
Answer: C
Q2) Without money, no transaction can occur.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Aggregate Economy
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61 Verified Questions
61 Flashcards
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Sample Questions
Q1) A financial intermediary accepts deposits from savers and makes loans to borrowers.
A)True
B)False
Q2) A person obtains income by selling the services of the resources that he or she owns.
A)True
B)False
Q3) Households and firms pay taxes to the government to:
A)increase their consumption spending.
B)finance the country's import bill.
C)increase their savings.
D)improve their standard of living.
E)finance government expenditures.
Q4) An unmarried couple holding joint title to their condominium constitutes a household.
A)True
B)False
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6
Chapter 5: Using Economics to Understand the World
Around You
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Refer to figure 5.1. An increase in the country's gross domestic product will cause:
A)no change in the production possibility curve of the country.
B)an upward movement along the production possibility curve.
C)a downward movement along the production possibility curve.
D)an inward shift in the production possibility curve.
E)a rightward shift in the production possibility curve.
Q2) Which of the following statements is true?
A)With an increase in the demand for health care, the quantity supplied increases but supply does not change.
B)With an increase in the demand for health care, the supply curve shifts to the right.
C)With an increase in the demand for health care, the supply curve shifts to the left.
D)With an increase in the demand for health care, the price of the product decreases.
E)With an increase in the demand for health care, the quantity supplied decreases but the supply does not change.
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Chapter 6: Elasticity: Demand and Supply
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133 Flashcards
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Sample Questions
Q1) If the quantity demanded of product S increases as the price of product T decreases, then S and T are complements.
A)True
B)False
Q2) If the demand for product R increases as the price of product S increases, then _____.
A)consumer preferences for S have increased
B)R and S are not related goods
C)R and S are substitutes
D)R and S are complements
E)R is an inferior good
Q3) Based on the information given in Table 6.2, coffee would be considered:
A)an inferior good.
B)a necessity.
C)a substitute good.
D)a complement good.
E)a luxury good.
Q4) In the long run, the quantity of capital available to a firm is fixed.
A)True
B)False
Page 8
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Chapter 7: Demand: Consumer Choice
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) As long as the marginal utilities per dollar obtained from the last unit of all products consumed are the same, _____.
A)the consumer is in equilibrium and will not reallocate income
B)the consumer is not in equilibrium and will reallocate income
C)the consumer is most likely operating a budget deficit
D)the consumer is not maximizing utility
E)the government will recognize this as an intolerable disequilibrium and will most likely intervene by imposing a tax and reallocate the consumer's income
Q2) The income and substitution effects of a price change occur because:
A)consumer incomes are not constant.
B)consumer substitution rates are not constant.
C)income and substitution effects never occur simultaneously.
D)of diminishing marginal utility and the equimarginal principle.
E)of increasing marginal utility and the equimarginal principle.
Q3) Utility is easy to measure in the real world with recent advances in psychometric technology.
A)True
B)False
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Chapter 8: Supply: the Costs of Doing Business
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) In Table 8.4, at 4 units of output marginal cost is:
A)$10.
B)$15.
C)$20.
D)$25
E)$30.
Q2) If marginal physical product of labor is declining, then average physical product must also be declining.
A)True
B)False
Q3) When the marginal-cost curve lies above the average-total-cost curve, the average-total-cost curve slopes up and the average-variable-cost curve slopes down.
A)True
B)False
Q4) In the long run, if the output of a firm is zero then its total cost will be equal to its total fixed cost.
A)True
B)False
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Chapter 9: Profit Maximization
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121 Flashcards
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Sample Questions
Q1) Which of the following characteristics distinguishes oligopoly from other market structures?
A)Firms operating in an oligopoly are independent of each other.
B)Firms operating in an oligopoly are interdependent.
C)Oligopoly is the simplest of all the other market structures.
D)An oligopolist does not face a downward-sloping demand curve.
E)Entry into an oligopolistic market is easier than entry into a monopolistically competitive market.
Q2) Firms under perfect competition produce:
A)homogeneous products.
B)unique products.
C)either standardized or differentiated products.
D)differentiated products.
E)antique products.
Q3) In general, the two extreme cases of market structure models are represented by:
A)monopolistic competition and oligopoly.
B)oligopoly and monopoly.
C)oligopoly and perfect competition.
D)perfect competition and monopoly.
E)perfect monopoly and oligopolistic competition.
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Chapter 10: Perfect Competition
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135 Flashcards
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Sample Questions
Q1) A perfectly competitive firm decides to shut down if:
A)the price falls below the average-total-cost.
B)average revenue falls below the average-variable-cost.
C)the price falls below the marginal cost.
D)the average revenue curve lies below the marginal cost curve.
E)the total revenue is less than total cost.
Q2) Refer to Figure 10.2. If the marginal-revenue curve would have intersected the average-total-cost curve at its lowest point and the firm maximized profit, then total revenue would have been equal to:
A)$500.
B)$550.
C)$600.
D)$450.
E)$400.
Q3) Perfect competition describes a firm's behavior in a market model where:
A)there are few firms producing identical products.
B)there are few firms producing highly differentiated products.
C)there are many firms producing identical products.
D)there are many firms producing highly differentiated products.
E)there are barriers to entry and exit for the new firms.
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Chapter 11: Monopoly
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) A monopolist maximizes profit:
A)by charging the highest possible price on the demand curve.
B)by charging a price that equals its marginal cost.
C)by producing a level of output where the average-cost curve intersects the demand curve.
D)by producing a level of output where marginal revenue equals marginal cost.
E)by charging a price equal to its average total cost.
Q2) When Glaxo-Wellcome introduced AZT, an AIDS drug, it was able to enjoy high profits because:
A)the drug was highly recommended by doctors.
B)of the quick response of rivals in introducing substitute drugs.
C)of barriers to entry provided by patents.
D)of its competitive price in the pharmaceutical industry.
E)it experienced constant returns to scale in the long run.
Q3) If a monopolist is producing the output level at which price equals average total cost in the short run, then the firm is earning a normal profit.
A)True
B)False
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Chapter 12: Monopolistic Competition and Oligopoly
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) The firms in an oligopoly market structure agree to collude because:
A)it helps them to earn more profits.
B)each firm wants to know the strategy of its rivals.
C)each firm wants to charge a lower price for its product than its rivals.
D)the firms want to maintain a healthy relationship with each other.
E)it helps them to enjoy economies of scale.
Q2) By forming a cartel the member firms can actually raise their profits.
A)True
B)False
Q3) Perfect competition is the only market structure in which firms are economically efficient in the long run.
A)True
B)False
Q4) The major similarity between a monopolist and a monopolistically competitive firm is that:
A)both are price takers.
B)both face a horizontal demand curve.
C)both are the sole producers of a particular good.
D)both face a negatively sloped demand curve.
E)both are affected by the decision of their rivals.
Page 14
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Chapter 13: Markets and Government
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) In the case of positive externalities, too many people consume and produce the good compared to what is desired by society.
A)True
B)False
Q2) When consumers or producers do not bear the full cost of their economic decisions, they tend to produce or consume more than they otherwise would.
A)True
B)False
Q3) When some benefits are received by those who are not involved in a private transaction, a negative externality occurs.
A)True
B)False
Q4) When negative externalities exist in a market, that market will produce too little output compared to the socially efficient level of output.
A)True
B)False
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Page 15
Chapter 14: Antitrust and Regulation
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) A market that is shared equally by 100 firms would have a Herfindahl index of :
A)1.
B)1,000.
C)500.
D)100.
E)50.
Q2) The International Communication Network which is the successor of GATT settles trade disputes among its member countries.
A)True
B)False
Q3) When regulating a natural monopoly, government officials face a dilemma that:
A)the efficient price may not allow the firm to break even.
B)the efficient price may lead to an inefficiently high level of output.
C)the efficient price leads to an output level that is too low.
D)the efficient price may force the firm to shut-down.
E)long-run average costs are constantly increasing.
Q4) The Social Security tax structure in the United States is regressive in nature.
A)True
B)False
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Chapter 15: Resource Markets
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) In Table 14.3, if there exists perfect competition in the capital market and the price per unit of capital is ten times the price of the product, the marginal factor cost at the profit maximizing level of employment is:
A)$60.
B)$50.
C)$40.
D)$30.
E)$20.
Q2) Goods which are demanded to produce something else are said to have a(n):
A)direct demand.
B)composite demand.
C)derived demand.
D)joint demand.
E)inelastic demand.
Q3) If there is imperfect competition in the product market, the marginal revenue product of a factor will be greater than the value of its marginal product.
A)True
B)False
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17
Chapter 16: The Labor Market
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116 Flashcards
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Sample Questions
Q1) The idea of comparable worth implies that wages are to be determined by the job characteristics and not merely by the interaction of demand and supply.
A)True
B)False
Q2) It is often profitable for the white-males to accept lower paying positions to avoid working with women.
A)True B)False
Q3) In Figure 16.5, if the income constraint of the individual is given by the line AB, he maximizes his utility by choosing _____ hours of leisure and earns an income of _____.
A)0; Y<sub>2</sub>
B)L<sub>1</sub>; Y<sub>7</sub>
C)L<sub>2</sub>; Y<sub>5</sub>
D)L<sub>3</sub>; Y<sub>4</sub>
E)L<sub>4</sub>; Y<sub>7</sub>
Q4) An example of human capital is the purchase of a computer to help accountants.
A)True
B)False
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Chapter 17: The Capital Market
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110 Flashcards
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Sample Questions
Q1) Which of the following describes the relationship between bond prices and bond yields?
A)There is a positive relationship between the yield and the price.
B)Every 1% increase in the bond price results in a 2% increase in the yield.
C)When the bond price is greater than the annual interest, yield is greater than one.
D)Bond price divided by the bid price is equal to the yield.
E)There is an inverse relationship between the yield and the price.
Q2) The fees paid to a mutual fund manager is called:
A)fund fee.
B)service fee.
C)load.
D)dividend.
E)agency fee.
Q3) The demand curve for the shares of a company's stock slopes upward, since the higher the price of the stock, everything else remaining the same, the higher the quantity of stock demanded.
A)True
B)False
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19
Chapter 18: The Land Market and Natural Resources
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Sample Questions
Q1) The supply curve in the market for land that has limited availability is:
A)perfectly elastic.
B)relatively inelastic.
C)unit elastic.
D)perfectly inelastic.
E)relatively elastic.
Q2) Unproductive actions designed to increase income or wealth are known as:
A)transfer payments.
B)incorporation.
C)profit seeking.
D)income search.
E)rent seeking.
Q3) In the market for land as a resource, the demand curve is elastic while the supply curve is perfectly inelastic. Identify the underlying assumption.
A)There are limited ways in which land can be used as a resource.
B)Land as an input has large number of substitutes.
C)There is a fixed supply of land.
D)Land includes all immovable assets.
E)The productivity of land improves over time.
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Chapter 19: Current Issues: Income, Income Distribution,
Poverty, and Government Policy
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Sample Questions
Q1) Which of the following tax structures creates a disincentive to earn more?
A)Proportional tax structure
B)Regressive tax structure
C)Digressive tax structure
D)Progressive tax structure
E)A combination of proportional and regressive tax structure
Q2) If those who are poor at any one time are poor only temporarily, then their plight is only temporary. This statement is based on which of the following assumptions?
A)Many spells of poverty are relatively short-lived.
B)Government spending in the economy is inadequate.
C)All phases of the business cycle are temporary.
D)Education infrastructure in the economy is poor.
E)Once people fall below the poverty line, it is almost impossible for them to rise above it.
Q3) When a low-income individual receives a transfer payment, that individual has less of an incentive to forgo leisure time for work time.
A)True
B)False
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Page 21
Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) Suppose France can produce 9,000 potatoes or 3,000 lemons per day, and that Italy can produce 3,000 potatoes or 3,000 lemons per day. Which of the following statements in this context is true?
A)France has an absolute advantage in producing lemons.
B)Italy has a comparative advantage in producing potatoes.
C)Italy would be willing to trade one lemon for anything greater than one potato.
D)Both countries would be willing to trade at a rate of one lemon for one potato.
E)France has a comparative advantage in producing lemons.
Q2) For purposes of determining comparative advantage, the cost of producing a good in each of two countries is measured in terms of:
A)metric units only.
B)opportunity costs.
C)total costs.
D)the currency of the importing country.
E)the currency of the exporting country.
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22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) When dealing with strategic trade policy, one practical problem for government is the likelihood of retaliation by foreign governments.
A)True
B)False
Q2) In reality international trade is determined solely by comparative advantage and the free market forces of supply and demand.
A)True
B)False
Q3) According to Figure 21.1, if the international price of the good is P<sub>1</sub>, which of the following statements is true?
A)The domestic market is in equilibrium.
B)There is an excess supply in the domestic market by the amount Q<sub>4</sub>Q<sub>2</sub>.
C)The country will export Q<sub>3</sub> - Q<sub>1</sub> units of the good.
D)There is an excess demand of Q<sub>4</sub> - Q<sub>2</sub> units in the domestic market.
E)The country needs to import Q<sub>5</sub> - Q<sub>1</sub> units of the good to satisfy domestic demand.
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Page 23
Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) In the foreign exchange market where French francs are traded for Japanese yen, a decrease in the interest rate in France is most likely to cause:
A)a decrease in the yen price of the French franc.
B)an increase in the interest rate in Japan.
C)an increase in the yen price of the French franc.
D)an increase in the demand for French francs.
E)an increase in the supply of yen.
Q2) Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive. This is mainly because:
A)arbitrage activities become less profitable.
B)governments discourage purchasing power parity.
C)the interest rate parity fails to hold.
D)goods become more differentiated across countries.
E)individuals develop hatred toward closed economies.
Q3) When a U.S. importer needs $20,000 to settle an invoice for 228,000 Uruguayan pesos, the price of 1 dollar is 11.4 Uruguayan pesos.
A)True
B)False
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