Introduction to Microeconomics Exam Practice Tests
Course Introduction
Introduction to Microeconomics explores the fundamental principles governing the behavior of individuals and firms in making decisions regarding the allocation of limited resources. This course covers topics such as supply and demand, market equilibrium, consumer and producer surplus, elasticity, and the impact of government intervention in markets. Students will analyze how markets function, the formation of prices, and the consequences of different market structures, gaining insight into the daily economic interactions that shape our world.
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Principles of Microeconomics 7th Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) In the United States, incomes historically have grown about 2 percent per year. At this rate, average income doubles every
A) 15 years.
B) 25 years.
C) 35 years.
D) 45 years.
Answer: C
Q2) If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,
A) an increase in the number of unskilled jobs available.
B) a decrease in the number of unskilled jobs available.
C) a decrease in the number of workers wanting unskilled jobs.
D) None of the above is correct.
Answer: B
Q3) Refer to Scenario 1-3. What is the company's average cost?
Answer: $50
Q4) In a centrally-planned economy, economic activity is guided by .
Answer: the government
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Chapter 2: Thinking Like an Economist
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Q1) A duty of economists at the Department of Labor is to
A) analyze data on workers.
B) schedule federal holidays.
C) enforce the nation's antitrust laws.
D) All of the above are correct.
Answer: A
Q2) Refer to Figure 2-22. How are price and quantity related in this graph?
Answer: negatively correlated
Q3) Refer to Figure 2-3. What is flowing from rectangle 1 to oval A?
A) revenue
B) goods and services sold
C) factors of production
D) labor, land, and capital
Answer: B
Q4) Refer to Figure 2-8. Inefficient production is represented by which point(s)?
A) K, M
B) L
C) L, M
D) M
Answer: D
Page 4
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that
A) Ken has an absolute advantage in chairs.
B) Ken has a comparative advantage in tables.
C) Traci has an absolute advantage in chairs.
D) Traci has a comparative advantage in chairs.
Answer: C
Q2) Refer to Figure 3-4. If Bryce must work 4 months to produce each sweater, then his production possibilities frontier is based on how many months of work?
A) 4 months
B) 8 months
C) 12 months
D) 16 months
Answer: B
Q3) Under what conditions is an economy's production possibilities frontier also its consumption possibilities frontier?
Answer: When the economy is self-sufficient; when there is no trade
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Chapter 4: The Market Forces of Supply and Demand
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Q1) If a decrease in income increases the demand for a good, then the good is a(n)
A) substitute good.
B) complementary good.
C) normal good.
D) inferior good.
Q2) When quantity supplied increases at every possible price, we know that the supply curve has
A) shifted to the left.
B) shifted to the right.
C) not shifted; rather, we have moved along the supply curve to a new point on the same curve.
D) not shifted; rather, the supply curve has become flatter.
Q3) Refer to Table 4-6. If these are the only four sellers in the market, then the market quantity supplied at a price of $4 is
A) 4 units.
B) 7.5 units.
C) 10 units.
D) 30 units.
Q4) Refer to Table 4-16. At a price of $8, how large of a surplus will there be in this market?
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Chapter 5: Elasticity and Its Application
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Q1) An increase in price causes an increase in total revenue when demand is A) elastic.
B) inelastic.
C) unit elastic.
D) All of the above are possible.
Q2) A linear, downward-sloping demand curve has a constant elasticity but a changing slope.
A)True
B)False
Q3) The flatter the demand curve that passes through a given point, the more inelastic the demand.
A)True
B)False
Q4) Total revenue will be at its largest value on a linear demand curve at the A) top of the curve, where prices are highest.
B) midpoint of the curve.
C) low end of the curve, where quantity demanded is highest.
D) None of the above is correct.
Q5) For which of the following goods would demand be most price elastic: a car, a sedan, a Honda sedan, a Honda Accord, a black Honda Accord?
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Chapter 6: Supply, Demand, and Government Policies
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Q1) The true burden of a payroll tax has nothing to do with the percentage of the tax that employers are required to pay.
A)True
B)False
Q2) A binding minimum wage tends to
A) cause a labor surplus.
B) cause unemployment.
C) have the greatest impact in the market for teenage labor.
D) All of the above are correct.
Q3) Refer to Table 6-3. How many units of the good are sold after the imposition of the price floor?
A) 5
B) 9
C) 10
D) 15
Q4) Discrimination is an example of a rationing mechanism that may naturally develop in response to a binding price floor.
A)True
B)False
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Refer to Table 7-7. You have two essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You hold an auction to sell the two tickets. Who makes the winning bids, and what do they offer to pay for the tickets?
A) Michael and Earvin; more than $350 but less than or equal to $400
B) Michael and Earvin; more than $400 but less than or equal to $500
C) Earvin and Larry; more than $300 but less than or equal to $350
D) Larry and Charles; less than $300
Q2) Refer to Table 7-11. If the price is $1,000,
A) Bobby is an eager supplier.
B) Dianne is an eager supplier.
C) Evaline's producer surplus is $100.
D) All of the above are correct.
Q3) Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus is
A) $8,500.
B) $15,500.
C) $24,000.
D) $39,500.
Page 9
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Chapter 8: Application: The Costs of Taxation
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Q1) Refer to Figure 8-4. The amount of the tax on each unit of the good is
A) $5.
B) $7.
C) $8.
D) $12.
Q2) Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the
A) less elastic is the demand for the good.
B) less elastic is the supply of the good.
C) smaller is the amount of the tax.
D) All of the above are correct.
Q3) Refer to Figure 8-4. The price that buyers effectively pay after the tax is imposed is A) $12.
B) between $8 and $12.
C) between $5 and $8.
D) $5.
Q4) Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?
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Chapter 9: Application: International Trade
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Q1) If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia
A) should import coffee.
B) has a comparative advantage in coffee and should export coffee.
C) should produce just enough coffee to satisfy domestic demand.
D) should produce no coffee domestically.
Q2) Refer to Figure 9-13. With trade, producer surplus is
A) $900.
B) $1,100.
C) $1,500.
D) $2,000.
Q3) The world price of cotton is the highest price of cotton observed anywhere in the world.
A)True
B)False
Q4) What is the fundamental basis for trade among nations?
A) shortages or surpluses in nations that do not trade
B) misguided economic policies
C) absolute advantage
D) comparative advantage
Page 11
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Chapter 10: Externalities
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Q1) Refer to Figure 10-9, Panel (b). The market equilibrium quantity is
A) Q2, which is the socially optimal quantity.
B) Q3, which is the socially optimal quantity.
C) Q2, and the socially optimal quantity is Q3.
D) Q3, and the socially optimal quantity is Q2.
Q2) Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?
Q3) Which of the following is not correct?
A) Markets allocate scarce resources with the forces of supply and demand.
B) The equilibrium of supply and demand is typically an efficient allocation of resources.
C) Governments can sometimes improve market outcomes.
D) Externalities cannot be positive.
Q4) The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?
Q5) Refer to Scenario 10-3. What are the market equilibrium quantity and price?
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Chapter 11: Public Goods and Common Resources
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Q1) Free goods are usually efficiently allocated without government intervention.
A)True
B)False
Q2) Refer to Table 11-2. Suppose the cost to install each streetlight is $360 and the families have agreed to split the cost of installing the streetlights equally. If the residents choose to install the number of streetlights that will maximize total surplus from the streetlights, how much total surplus will the Greene family receive?
A) -$80
B) $320
C) $360
D) $480
Q3) The free-rider problem exists with
A) public transportation
B) knowledge.
C) online music subscriptions.
D) All of the above are correct.
Q4) Refer to Scenario 11-2. Which of these goods is the best example of a club good? Briefly explain.
Q5) In what sense is it meaningful to say that fighting poverty is a public good?
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) The largest category of expenditures for state and local governments is .
Q2) Wilma values a decorative garden rock at $15, while Fred values it at $10. The price of a decorative garden rock is $9. If the government imposes a $2 tax per decorative garden rock and the price of the rock rises to $11, what part of the deadweight loss comes from Wilma, and what part comes from Fred?
A) none comes from Wilma; $1 comes from Fred
B) none comes from Wilma; $3 comes from Fred
C) $2 comes from Wilma; $1 comes from Fred
D) $4 comes from Wilma; $3 comes from Fred
Q3) In 2011, approximately what percentage of the U.S. federal government's receipts came from individual income taxes?
A) 9%
B) 15%
C) 43%
D) 67%
Q4) Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.
A)True
B)False
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Chapter 13: The Costs of Production
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Q1) Economic profit
A) will never exceed accounting profit.
B) is most often equal to accounting profit.
C) is always at least as large as accounting profit.
D) is a less complete measure of profitability than accounting profit.
Q2) If the marginal-cost curve is rising, then so is the average-total-cost curve.
A)True
B)False
Q3) Describe the general shape of the average-fixed-cost curve.
Q4) Refer to Scenario 13-6. An economist would calculate Ziva's total cost of farming to equal
A) $130.
B) $250.
C) $300.
D) $380.
Q5) Refer to Table 13-20. Firm A is experiencing economies of scale.
A)True B)False
Q6) Consider a small family wheat farm. List some examples of implicit costs of farming.
Page 15
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Chapter 14: Firms in Competitive Markets
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Q1) Refer to Table 14-6. What is the total revenue from selling 4 units?
A) $120
B) $257
C) $317
D) $480
Q2) Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q2?
A) 140,000
B) 210,000
C) 280,000
D) 420,000
Q3) The supply curve of a firm in a competitive market is the average variable cost curve above the minimum of marginal cost.
A)True
B)False
Q4) Refer to Figure 14-6. Firms will shut down in the short run if the market price A) exceeds P3. B) is less than P1. C) is greater than P1 but less than P3. D) exceeds P2.
Page 16
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Chapter 15: Monopoly
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Q1) Refer to Scenario 15-3. The firm's profit-maximizing price is A) $30.
B) between $30 and $34. C) between $34 and $60.
D) $60.
Q2) If the monopolist's linear demand curve intersects the quantity axis at Q = 30, then the monopolist's marginal revenue will be equal to zero at A) Q = 10.
B) Q = 15.
C) Q = 20.
D) Q = 30.
Q3) The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as A) sabotage.
B) conspiracy.
C) arbitrage. D) collusion.
Q4) Refer to Figure 15-23. If the firm profit-maximizes, how much profit will it earn?
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Chapter 16: Monopolistic Competition
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Q1) Refer to Scenario 16-2. If the marginal cost of producing this good is 4, how much total consumer surplus would consumers receive in this market?
A) 8
B) 12
C) 32
D) 64
Q2) Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing monopolist charge for the product?
A) P = 0
B) P = 5
C) P = 10
D) P = 20
Q3) Refer to Table 16-4. What is this firm's profitmaximizing level of output?
A) 0 units of output
B) 3 units of output
C) 4 units of output
D) 5 units of output
Q4) Refer to Scenario 16-8. What two benefits are conveyed by the brand name Burger Bonanza?
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Chapter 17: Oligopoly
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Q1) Which of the following statements is correct?
A) Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small.
B) Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets.
C) Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe.
D) Game theory is not necessary for understanding competitive or monopoly markets.
Q2) During the 1990s, the members of OPEC operated independently from one another, causing the world market for crude oil to become close to A) a monopoly market.
B) an oligopoly market.
C) a duopoly market.
D) a competitive market.
Q3) Give an example of a famous cartel.
Q4) As the number of firms in an oligopoly industry increases, the market moves closer to a market.
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Chapter 18: The Markets for the Factors of Production
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Q1) The negative slope of the value of marginal product curve is most easily explained by
A) tight labor markets.
B) a surplus of workers.
C) diminishing marginal product.
D) diminishing marginal cost.
Q2) Refer to Table 18-7. What is the value of the cell labeled GG?
A) $400
B) $100
C) $0
D) $100
Q3) Refer to Table 18-1. Suppose that the firm pays its workers $45 per day. Each unit of output sells for $10. How many days of labor should the firm hire?
A) 1
B) 2
C) 3
D) 4
Q4) A competitive, profit-maximizing firm hires labor up to the point at which the wage is equal to the .
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Chapter 19: Earnings and Discrimination
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Q1) Two economists created fake resumes with either common African-American names such as Lakisha and Jamal or common white names such as Emily and Greg. After sending them to potential employers with "Help Wanted" ads in Boston and Chicago newspapers, they found that
A) black employees earned 50 percent less than white employees in Chicago but that blacks and whites had similar wages in Boston.
B) black employees earned 50 percent less than white employees in Boston but that blacks and whites had similar wages in Chicago.
C) job applicants with white names received 50 percent more phone calls from interested employers.
D) job applicants with white names received 7 percent more phone calls from interested employers.
Q2) Economists have found evidence that differences in wages can be explained by A) experience
B) job characteristics
C) physical attractiveness
D) All of the above are correct.
Q3) Which theory states that education is correlated with natural ability?
Q4) Which theory states that education makes workers more productive?
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Chapter 20: Income Inequality and Poverty
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Q1) Economic mobility in the United States is so great that fewer than
A) 3 percent of families are poor for 8 or more years.
B) 5 percent of families are poor for 8 or more years.
C) 8 percent of families are poor for 8 or more years.
D) 10 percent of families are poor for 8 or more years.
Q2) Liberalism suggests that public policies should aim to
A) maximize the sum of utility of everyone in society.
B) maximize the well-being of the average person in society.
C) maximize the well-being of the worst-off person in society.
D) minimize the difference between the utility of the best-off person in the society and the utility of the worst-off person in society.
Q3) In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified. As long as the government only has "leaky buckets" at its disposal,
A) the costs of welfare programs will exceed the benefits.
B) it should not try to reach complete equality in income.
C) income equality will be the best policy option.
D) equality of economic opportunity will reduce society's utility.
Q4) Refer to Table 20-14. The trend in income inequality from 1980 to 2010 is .
Q5) Explain the relationship between labor earnings and the distribution of income.
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Chapter 21: The Theory of Consumer Choice
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Q1) The substitution effect from an increase in wages is evident in a A) decrease in labor demand.
B) desire to consume less leisure.
C) desire to consume more leisure.
D) backward-bending labor supply curve.
Q2) Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?
A) $10
B) $5
C) $4
D) $2
Q3) Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer's optimal choice is point
A) A.
B) B.
C) C.
D) D.
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Chapter 22: Frontiers of Microeconomics
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Q1) People with hidden health problems are more likely to buy health insurance than are other people. This is an example of
A) moral hazard and makes the cost of health insurance higher than otherwise.
B) moral hazard and makes the cost of health insurance lower than otherwise.
C) adverse selection and makes the cost of health insurance higher than otherwise.
D) adverse selection and makes the cost of health insurance lower than otherwise.
Q2) The median voter
A) is the voter exactly in the middle of the distribution.
B) is the voter whose preferred outcome beats any other proposal in a two-way race.
C) always has more than half the votes on his side in a two-way race.
D) All of the above are correct.
Q3) When economists assume that people are rational, they assume that
A) consumers maximize profits.
B) firms maximize revenues.
C) consumers maximize utility.
D) firms maximize output.
Q4) Explain the Condorcet paradox. To which type of voting system does it apply?
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