Introduction to Microeconomics Final
Test Solutions
Course Introduction
Introduction to Microeconomics explores the fundamental principles that govern individual and firm decision-making in the allocation of scarce resources. The course examines core concepts such as supply and demand, market equilibrium, elasticity, consumer behavior, production and cost theories, and various market structures including perfect competition, monopoly, and oligopoly. Through real-world examples and analytical models, students learn how prices are determined, how markets function, and how economic agents respond to incentives, preparing them for deeper studies in economics and for understanding economic issues in daily life.
Recommended Textbook Microeconomics Student Value 4th Edition by
R. Glenn Hubbard
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18 Chapters
2548 Verified Questions
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following is part of an economic model?
A)assumptions
B)norms
C)opinions
D)preferences of economic agents
Answer: A
Q2) Which of the following contributed to the downfall of the Soviet Union in 1991?
A)public dissatisfaction with low living standards and political repression
B)producing higher-quality goods than were desired by consumers
C)the rapidly increasing standard of living
D)the lack of a strong dictator who can coordinate economic activities
Answer: A
Q3) Fast food restaurants produce a range of menu items such as hamburgers,chicken sandwiches,salads,and french fries.What fundamental economic question are they addressing by offering this range of items?
A)How to produce goods that consumers want?
B)Why produce a variety of menu items?
C)What to produce?
D)Who to produce the menu items for?
Answer: C
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Sample Questions
Q1) Refer to Table 2-4.Estonia has a comparative advantage in the production of A)both products.
B)lumber.
C)cell phones.
D)neither product.
Answer: B
Q2) Refer to Table 2-3.What is Jack's opportunity cost of cultivating a garden?
A)half a garden cultivated
B)two lawns mowed
C)two-thirds of a garden cultivated.
D)one and a half lawns mowed
Answer: D
Q3) If a vineyard wants to raise funds to purchase a new bottling machine,it does so in the
A)factor market.
B)output market.
C)product market.
D)alcoholic beverages market.
Answer: A
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) An inferior good is a good for which the quantity demanded increases as the price decreases,holding everything else constant.
A)True
B)False
Answer: False
Q2) Market equilibrium occurs where the quantity supplied is equal to the quantity demanded.
A)True
B)False
Answer: True
Q3) Refer to Figure 3-2.A decrease in the price of inputs would be represented by a movement from
A)A to B.
B)B to A.
C)S<sub>1</sub> to S<sub>2</sub>.
D)S<sub>2</sub> to S<sub>1</sub>.
Answer: C
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Page 5
Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) A tax is efficient if it imposes a small excess burden relative to the tax revenue it raises.
A)True
B)False
Q2) The following equations represent the demand and supply for bird feeders. QD = 35 - P
QS = -5 + 3P
What is the equilibrium price (P)and quantity (Q - in thousands)of bird feeders?
A)P = $10; Q = 25 thousand
B)P = $35; Q = 20 thousand
C)P = $20; Q = 20 thousand
D)P = $5; Q = 30 thousand
Q3) Increases in the minimum wage are intended to raise the incomes of low-income workers.Many economists favor a different policy to achieve this goal,a policy that avoids the deadweight losses that result from the minimum wage.What is this policy?
A)distribution of food stamps to low-income consumers
B)distribution of vouchers that can be used for rent or mortgage payments
C)the Alternative Minimum Tax
D)the earned income tax credit
Page 6
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) If the EPA does implement its plan to enact tougher limits on smog-forming ozone,the quantity of product being produced by the polluting firms will ________ and the product price will ________.
A)increase; increase
B)increase; decrease
C)decrease; increase D)decrease; decrease
Q2) Refer to Figure 5-1.What is the deadweight loss from producing at the market equilibrium?
A)area C
B)area E
C)area D
D)area F
Q3) The 2005 European Union Emission Trading Scheme is an agreement among ________ to reduce carbon dioxide emissions.
A)the European Union and the United States
B)24 European Union nations
C)Western Europe and Africa
D)The European Union and the Asian nations of China,Japan,and South Korea
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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Sample Questions
Q1) Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50,the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula,what is the price elasticity of demand (in absolute value)over this range?
A)0.003
B)0.41
C)2.43
D)4
Q2) Refer to Table 6-5.What is the most distinctive feature of the supply curve?
A)The supply curve is perfectly inelastic.
B)The supply curve is horizontal.
C)The supply curve is upward sloping.
D)The supply curve is perfectly elastic.
Q3) Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.
Q4) Briefly explain the economic concept of elasticity.
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Substantial co-payments are typically not required as a part of the health care system in
A)Canada and the United Kingdom.
B)Japan and Canada.
C)the United States and Japan.
D)Japan and the United Kingdom.
Q2) In the United States in 2009,over 50 percent of people without health insurance were below the age of 34.
A)True
B)False
Q3) Most doctors are employed by the government and most hospitals are owned by the government in A)Canada.
B)Japan.
C)the United Kingdom.
D)the United States.
Q4) In what ways do economists and policymakers who believe that market-based reforms are the key to improving the health care system criticize the Patient Protection and Affordable Care Act (PPACA)?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) What happens in the primary market?
A)primary inputs like electricity are sold
B)a corporate financial manager will resell previously issued shares of stock
C)newly issued claims are sold by the borrowing firm to the initial buyer
D)already issued claims are sold from one investor to another
Q2) A corporation's management
A)owns the corporation.
B)hires the board of directors.
C)are liable for the corporation's debts.
D)operates and controls a corporation in its day-to-day activities.
Q3) As a business type,corporations ________ in the United States.
A)earn the majority of profits
B)are the most common
C)are the least common
D)are subject to the least amount of taxes
Q4) What type of business is the easiest to set up?
A)sole proprietorship
B)partnership
C)corporation
D)There is no difference in the ease of establishment.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) The quota on imported sugar costs U.S.consumers more than $2 billion annually and protects very few jobs.Why does Congress maintain a sugar quota that protects only a few thousand workers while forcing millions of people to pay higher prices for sugar products?
A)Most U.S.citizens do not buy sugar products and want to help workers in the sugar industry.
B)Voters fear that if they oppose the sugar lobby,the lobby may oppose issues that they want Congress to support.
C)Citizens are not as involved in social and political issues as they used to be.
D)The per person cost of the sugar quota is too small for many people to lobby Congress to make their views known.
Q2) Refer to Table 9-1.Use the table above to select the statement that accurately interprets the data in the table.
A)Rob has a comparative advantage in catching fish.
B)Bill has an absolute advantage in catching fish.
C)Bill has a comparative advantage in catching fish.
D)Rob has a comparative advantage in picking berries and catching fish.
Q3) What are terms of trade?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Explain the endowment effect.
Q2) Why do convex indifference curve have a negative slope?
A)because consumers take market prices as given
B)because consumers face a budget constraint
C)because to keep utility constant,a consumer must get more of one good if she is to give up some of the other
D)because scarcity implies that it is not possible to consume more of one good without giving up some of the other
Q3) Which of the following statements is false?
A)There is an indifference curve associated with any combination of goods selected by a consumer.
B)A consumer is indifferent among all consumption bundles along a given budget line.
C)All consumption bundles along a given indifference curve are equally desirable.
D)Consumption bundles that lie on higher indifference curves yield higher utility.
Q4) Explain the concept of network externalities.
Q5) What is an indifference curve? Why can indifference curves never cross?
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) The rate at which a firm is able to substitute one input for another while keeping the level of output constant is called the
A)opportunity cost of inputs.
B)marginal rate of technical substitution.
C)input trade-off rate.
D)isoquant substitution rate.
Q2) In his book The Wealth of Nations,Adam Smith employed the example of a pin factory in order to explain what economic concept?
A)the relationship between the marginal and average product of labor
B)the law of diminishing returns
C)why no firm would want to hire so many workers as to experience a negative marginal product of labor
D)the division of labor
Q3) Refer to Figure 11-6.In the short run,if the firm sells fewer than 5,000 picture frames per month
A)it should produce with the scale of operation associated with ATCa.
B)it should produce with the scale of operation associated with ATCb.
C)it should produce with the scale of operation associated with ATCc.
D)it will experience constant returns to scale.
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Page 13
Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) What is the difference between "shutting down temporarily" and "exiting the industry"?
Q2) Assume that firms in a perfectly competitive market are earning economic profits.Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?
A)The market demand curve shifts to the right,causing price to rise and market output to increase.
B)The market demand curve shifts to the left,causing price to fall and market output to decrease.
C)The short-run market supply curve shifts to the right,causing price to fall and total market output to increase.
D)The short-run market supply curve shifts to the left,causing price to rise and total market output to decrease.
Q3) What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.
Q4) If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) Both monopolistically competitive firms and perfectly competitive firms maximize profits
A)by producing where price equals average total cost.
B)by producing where marginal revenue equals average revenue.
C)by producing where marginal revenue is equal to marginal cost.
D)by producing where price equals average variable cost.
Q2) Which of the following is the best example of a firm that competes in a monopolistically competitive market?
A)the U.S.Postal Service
B)Microsoft
C)a movie theater
D)an automobile manufacturer
Q3) In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms
A)charge a price that is greater than average revenue.
B)charge a price that is equal to marginal cost.
C)do not produce at minimum average total cost.
D)charge a price that is equal to average total cost.
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.
Q2) The fraction of an industry's sales that are accounted for by the largest firms is called
A)the four-firm competition ratio.
B)the four-firm concentration ratio.
C)the four-firm industry ratio.
D)the four-firm oligopoly ratio.
Q3) Refer to Table 14-1.Does Alistair have a dominant strategy and if so,what is it?
A)Yes,Alistair should increase its advertising budget.
B)Yes,Alistair should keep its advertising budget as is.
C)There are two dominant strategies: if Baine increases its advertising budget,then Alistair's best bet is to keep its budget the same but if Baine does not increase its spending then Alistair should raise its advertising budget
D)No,there is no dominant strategy.
Q4) Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.
Q5) What is the difference between explicit collusion and implicit collusion?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) A monopoly firm is the only seller of a good or service that
A)has a perfectly elastic demand.
B)has no close complements.
C)does not need to be advertised.
D)does not have a close substitute.
Q2) Producers in perfect competition receive a smaller producer surplus than a monopoly producer.
A)True
B)False
Q3) In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller
A)the greater the difference between marginal cost and price.
B)the smaller the difference between marginal cost and average total cost.
C)the smaller the difference between marginal cost and price.
D)the greater the difference between marginal cost and average revenue.
Q4) U.S.antitrust laws are designed to prohibit monopolization and encourage competition.Why,then,does the government erect barriers to entry and create monopoly power by granting firms patents?
Q5) If you own the only bookstore in a small town,do you have a monopoly?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Draw a graph that shows producer surplus,consumer surplus,and deadweight loss in a market where the seller practices perfect price discrimination.Be sure to identify the demand curve,the marginal revenue curve,the marginal cost curve,and the profit maximizing quantity on the graph.
Q2) Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are
A)subject to a retail profits tax.
B)are not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items. C)the result of arbitrage.
D)accounting profits but not economic profits.
Q3) The Clayton Act of 1936 outlawed price discrimination that reduced competition. A)True B)False
Q4) What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?
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Page 18
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Marsha Murphy complained,"Many jobs that are filled mostly by men offer higher wages than most jobs that are typically filled by women.In many cases,the jobs men have require the same education and skills as the jobs women have.This is clearly unfair.Women should be paid the same wages as men are paid for jobs that are equivalent in terms of their qualifications." Which of the following statements describes Marsha's position?
A)Marsha believes that women's wages should include a compensating differential. B)Marsha believes employers assume that men and women have different job preferences.
C)Marsha believes that employers are reluctant to hire women for certain jobs because of cognitive dissonance.
D)Marsha endorses a concept called comparable worth.
Q2) Which of the following variables will not cause the market supply curve of labor to shift?
A)increases in population
B)a favorable change in consumer tastes
C)a change in the labor participation rate of women
D)an increase in the number of people between the ages of 16 and 65
Q3) Why are there superstar baseball players but no superstar chiropractors?
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Sample Questions
Q1) Which of the following is the largest source of revenue for the U.S.federal government?
A)the individual income tax
B)social insurance taxes
C)sales taxes
D)property taxes
Q2) What is a Lorenz curve and what is a Gini coefficient?
Q3) A common belief among political analysts is that someone running for his or her party's nomination for president of the United States must choose a different strategy once the nomination is secured.To be nominated,the candidate must appeal to voters from one party - Democrat or Republican - but in a general election a party's nominee must appeal to voters from both parties as well as independent voters.Which of the following offers the best explanation for this change in strategy?
A)the Arrow impossibility theorem
B)the voting paradox
C)the median voter theorem
D)rent seeking
Q4) What is the difference between the poverty line and the poverty rate?
Q5) What is rent seeking and how is it related to regulatory capture?
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