Introduction to Microeconomics Solved Exam Questions
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Introduction
Introduction to Microeconomics explores the fundamental principles governing individual and firm behavior in markets. The course covers key topics such as supply and demand, market equilibrium, elasticity, consumer choice, production and costs, and the various market structures including perfect competition, monopoly, and oligopoly. Emphasis is placed on how these concepts explain the allocation of scarce resources, the determination of prices, and the influence of government policies. Through real-world examples and analytical tools, students learn to apply microeconomic reasoning to everyday economic decisions and policy debates.
Recommended Textbook Principles of Microeconomics 7th Canadian Edition by McKenzie Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.
A)True
B)False
Answer: True
Q2) The tenth principle of economics shows the short-run tradeoff between inflation and economic growth.
A)True
B)False
Answer: False
Q3) Why is the opportunity cost of gasoline in Canada higher than in the United States when measured by "Minutes Worked per Kilometre Driven"
A)The fuel economy in the two countries is different.
B)Gas prices are lower and average wages are higher in the United States.
C)Both gas prices and average wages are higher in the United States.
D)Both gas prices and average wages are lower in the United States.
Answer: B
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What is an ordered pair
A)the process of checking calculations twice before placing them on a graph
B)two numbers that can be represented by a single point on a graph
C)two numbers that are represented by side-by-side points on a graph
D)two points on a graph that are equal distances from the origin
Answer: B
Q2) What happens in the markets for factors of production
A)Households provide firms with labour, land, and capital.
B)Households provide firms with savings for investment.
C)Firms provide households with goods and services.
D)The government provides firms with inputs for the production process.
Answer: A
Q3) The tradeoff between the production of different goods can change because of technological improvement over time.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Regan grows flowers and makes vases.Jayson also grows flowers and makes vases,but Regan is better at producing both.Who has an absolute or comparative advantage in what activity
A)Regan has an absolute advantage in both activities.
B)Jayson has an absolute advantage in both activities.
C)Regan has a comparative advantage in growing flowers.
D)Jayson has a comparative advantage in growing flowers.
Answer: A
Q2) Refer to Table 3-6.What is the opportunity cost of one unit of cheese in Denmark
A)1/4 bread
B)1/2 bread
C)2 breads
D)4 breads
Answer: B
Q3) For a country producing two goods,the opportunity cost of one good will be the inverse of the opportunity cost of the other good.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) What is the downward-sloping line that relates prices and quantity demanded
A)demand schedule
B)demand curve
C)quantity demanded line
D)quantity demanded curve
Q2) What will happen to the equilibrium price and quantity of gasoline powered lawnmowers if the prices of battery powered lawnmowers goes down and,at the same time,firms switch from producing gasoline powered lawnmowers to producing battery powered lawnmowers
A)price will fall and the effect on quantity is ambiguous
B)price will rise and the effect on quantity is ambiguous
C)quantity will fall and the effect on price is ambiguous
D)quantity will rise and the effect on price is ambiguous
Q3) Market demand is given as Q<sub>D </sub>= 70 - 2P.Market supply is given as Q<sub>S </sub>= P + 10.What would result if the market price were $10
A)a shortage of 30
B)a surplus of 20
C)a surplus of 30
D)a shortage of 20
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Chapter 5: Elasticity and Its Application
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Q1) What happens when demand is elastic in the current price range
A)An increase in price would increase total revenue because the decrease in quantity demanded is less than the increase in price.
B)An increase in price would decrease total revenue because the decrease in quantity demanded is greater than the increase in price.
C)A decrease in price would decrease total revenue because the increase in quantity demanded is smaller than the decrease in price.
D)A decrease in price would not affect the total revenue.
Q2) Suppose that good X has a negative income elasticity of demand.What does this imply about the good
A)It is a normal good.
B)It is a necessity.
C)It is an inferior good.
D)It is a luxury.
Q3) The flatter the demand curve that passes through a given point,the more inelastic the demand.
A)True
B)False
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Chapter 6: Supply, demand, and Government Policies
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Sample Questions
Q1) What have researchers found will happen after a 10 percent increase in the minimum wage
A)Teen employment falls by 1 to 3 percent.
B)For young adults aged 20-25 employment falls by 1 to 3 percent.
C)Teen employment rises by 1 to 3 percent.
D)For young adults aged 20-25 employment rises by 1 to 3 percent.
Q2) Where is the initial effect of a tax on the buyers of a good A)on the supply of that good B)on the demand for that good
C)on the equilibrium quantity of the good D)on the equilibrium price of the good
Q3) When free markets ration goods with prices,it is both efficient and impersonal.
A)True
B)False
Q4) Refer to Figure 6-1.Which of the above figures represent price control correctly
A)panel (a) and panel (c)
B)panel (b) and panel (d)
C)panel (a) and panel (d)
D)panel (b) and panel (c)
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) Suppose consumer income increases.If grass seed is a normal good,what happens to the equilibrium price of grass seed and producer surplus
A)They both decrease.
B)They both increase.
C)The equilibrium price will decrease, and producer surplus in the industry will increase.
D)The equilibrium price will increase, and producer surplus in the industry will decrease.
Q2) Suppose a consumer is willing and able to pay $18.00 for a particular good but only has to pay $14.00.What is the consumer surplus
A)$4.00
B)$14.00
C)$18.00
D)$32.00
Q3) Refer to Figure 7-6.At the equilibrium price,what would producer surplus be
A)$480
B)$640
C)$1120
D)$1280
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Which of the following is used in economic analysis to judge the effect of taxes on economic welfare
A)government deficits
B)consumer and producer surplus
C)equilibrium price and quantity
D)opportunity cost
Q2) Given the supply of land is fixed,who would pay a tax on land
A)the landowners
B)the renters or users of the land
C)partly landowners and partly land users
D)workers
Q3) How is the benefit received by buyers in the market measured
A)by the demand curve
B)by consumer surplus
C)by the amount buyers are willing to pay for the good
D)by the equilibrium price
Q4) The larger the deadweight loss from taxation,the larger the cost of any government program.
A)True
B)False
Page 10
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Chapter 9: Application: International Trade
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Sample Questions
Q1) Figure 9-8 shows the domestic market for solar panels in Germany.What is the quantity of solar panels imported into Germany
A)0
B)Q - Q
C)Q - Q
D)Q - Q
Q2) When a country allows trade and becomes an importer of a good,what happens to consumer surplus and producer surplus
A)Consumer surplus and producer surplus will increase.
B)Consumer surplus and producer surplus will decrease.
C)Consumer surplus will increase, and producer surplus will decrease.
D)Consumer surplus will decrease, and producer surplus will increase.
Q3) Refer to Figure 9-6.Without trade,what would total surplus be
A)$122.50
B)$306.25
C)$612.50
D)$1050.00
Q4) Import tariffs cause the quantity of imports to fall.
A)True
B)False
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) According to the Coase theorem,how can an efficient outcome be reached
A)Private parties can bargain to reach an efficient outcome.
B)Government assistance is necessary for markets with externalities to reach an efficient outcome.
C)Both positive and negative externalities will always lead to inefficient outcomes in the markets.
D)No market will experience long-term externalities since normal market adjustments will eliminate externalities.
Q2) What is meant by internalizing an externality? How can a negative externality be internalized?
Q3) What will a positive externality cause a private market to produce
A)less than is socially desirable
B)more than is socially desirable
C)more than market equilibrium
D)less than market equilibrium
Q4) Despite the stated goals of some environmentalists,it would be impossible to prohibit all polluting activity.
A)True
B)False
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) What are most goods in the economy
A)club goods
B)common resources
C)public goods
D)private goods
Q2) Assuming that everyone prefers to live in a society without poverty,what do we know about people who do not donate to private charity
A)They receive no external benefit from private antipoverty programs.
B)They decrease the reliance of individuals on antipoverty programs.
C)They free-ride on the generosity of others.
D)They are most likely to be in favour of government-sponsored programs.
Q3) Which of the following would be considered a common resource good
A)Internet service
B)bottled natural mineral water
C)uncongested toll roads
D)fish in the ocean
Q4) "The role of government in the economy should be restricted to the assignment and enforcement of property rights." Use this statement to explain why African elephants are on the verge of becoming extinct.What are the governments' possible solutions to this problem
Page 13
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Chapter 12: The Design of the Tax System
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Sample Questions
Q1) What are taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages called
A)sales taxes
B)excise taxes
C)social insurance taxes
D)consumption taxes
Q2) Why has spending on health been the focus of many proposed reforms over the past several years
A)Health care costs have risen more rapidly than the cost of other goods and services produced in the economy.
B)Provincial health care systems have demonstrated that they are more efficient than private health care systems.
C)Cures for many major diseases are likely to be found in the next few years.
D)Increasing access to doctors will increase the general health of the population.
Q3) The most important taxes for provincial and local governments are income taxes and property taxes.
A)True
B)False
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Chapter 13: The Costs of Production
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Sample Questions
Q1) Refer to Figure 13-6.When does the firm experience diseconomies of scale
A)if it changes its level of output from Q to Q
B)if it changes its level of output from Q to Q
C)if it changes its level of output from Q to Q
D)if it changes its level of output from Q to Q
Q2) XYZ Corporation produced 300 units of output but sold only 255 of the units it produced.The average cost of production for each unit of output produced was $100.Each of the 255 units sold was sold for a price of $100.What would total revenue for XYZ Corporation be
A)-$2700
B)$2700
C)$21,125
D)$25,500
Q3) Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shops average-total-cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average-total-cost curve. Bobs economist explains that ATC is U-shaped for two reasons. The first is the existence of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the marginal-cost curve is linear. (Hint: The second reason relates to average fixed cost.)
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Chapter 14: Firms in Competitive Markets
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Sample Questions
Q1) Refer to Figure 14-1.When market price is at P ,what would a firm producing output level Q experience
A)losses, because P < ATC at output level Q
B)losses equal to (P - P ) × Q
C)zero profits
D)profits equal to (P - P ) × Q
Q2) When a competitive market experiences an increase in demand that induces an increase in producer costs,which consequence is most likely
A)The long-run market supply curve will be upward sloping.
B)The condition of free entry into the market will be violated.
C)Producer profits must fall in the long run.
D)The long-run market supply remains constant at minimum long-run average cost.
Q3) The marginal firm in a competitive market will earn zero economic profits in the long run.
A)True
B)False
Q4) Give two reasons why the long-run industry supply curve may slope upward.Use an example to demonstrate your reasons.
Q5) List and describe the characteristics of a perfectly competitive market.
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Chapter 15: Monopoly
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Q1) When will a monopolist choose to increase output
A)when market price increases
B)when marginal revenue is positive
C)when marginal revenue exceeds marginal cost at the present level of output
D)when marginal revenue is less than marginal cost at the present level of output
Q2) When does a natural monopoly arise
A)when there are constant returns to scale over the relevant range of output
B)when there are economies of scale over the relevant range of output
C)when one firm owns a key natural resource
D)when the government gives a single firm the exclusive right to produce a particular good or service
Q3) Refer to Table 15-1.If the monopolist wants to maximize its revenue,how many units of its product should it sell
Q4) Explain the benefits and costs of competition law.
Q5) Why does a monopoly firm not have a supply curve?
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Chapter 16: Monopolistic Competition
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Q1) When a firm in a monopolistically competitive market earns zero economic profit,its product price must equal marginal cost.
A)True
B)False
Q2) What did Edward Chamberlin argue about brand names
A)They hampered market efficiency.
B)They were instrumental in enhancing market efficiency.
C)They were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks.
D)They were likely to be more socially efficient when used in conjunction with advertising.
Q3) When a firm operates at the efficient scale,what explains the characteristic of the average-total-cost-curve
A)Its average revenue must be less than the minimum of average total cost.
B)Its average revenue must be equal to the minimum of average total cost.
C)The average-total-cost curve must be falling.
D)The average-total-cost curve must be rising.
Q4) What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?
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Chapter 17: Oligopoly
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Q1) Refer to Table 17-5.For which store is the dominant strategy to increase the size of its store and parking lot
A)SuperDuper Saver, but not Ultimate Saver
B)Ultimate Saver, but not SuperDuper Saver
C)both SuperDuper Saver and Ultimate Saver
D)neither SuperDuper Saver and Ultimate Saver
Q2) Refer to Table 17-1.Suppose the town enacts new competition laws that prohibit Matthew and Anna from operating as a monopolist.What will the new price of water end up being once the Nash equilibrium is reached
A)$3
B)$4
C)$5
D)$6
Q3) Refer to Table 17-4.If both countries follow a dominant strategy,what will the value of trade flow benefits for Germany be
A)$30
B)$80
C)$280
D)$290
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Chapter 18: The Markets for the Factors of Production
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Sample Questions
Q1) What is a market in which there is only one buyer called
A)a monopsony
B)a monopoly
C)a uniopoly
D)an oligopsony
Q2) Why are labour markets different from most other markets
A)Labour demand is represented by a vertical line on a supply-demand diagram.
B)Labour demand is represented by an upward-sloping line on a supply-demand diagram.
C)Labour demand is derived.
D)Labour demand is differentiated.
Q3) When we focus on the firm as a supplier of a good or a service,we assume that the firm is a profit maximizer.When we focus on the firm as a demander of labour,what do we assume the firm's objective to be
A)minimize wages
B)minimize variable costs
C)maximize the number of workers hired
D)maximize profit
Q4) Why do we say that workers today are better off than workers in previous generations?
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Chapter 19: Earnings and Discrimination
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Sample Questions
Q1) Discuss the analogy between physical and human capital.
Q2) A prestigious private high school requires each of its teachers to have a Ph.D.in the subject they teach.Which effect is this requirement likely to have
A)an increase in the supply of teachers to this school
B)an increase in wages for teachers at the private school, relative to those at public schools
C)a decrease in the marginal product of teachers at the private school
D)an increase in the demand for teachers by this school
Q3) When the supply of workers is plentiful,what would one predict that market wages would be
A)determined outside the domain of the neoclassical theory
B)determined solely by factors that affect demand
C)low, other things equal
D)high, other things equal
Q4) Why is a plumber unlikely to be as rich as a movie star
A)Compensating differential creates a higher wage in the movie business.
B)There haven't been any decent technological advances in the plumbing industry.
C)Productivity levels are low in the plumbing industry due to low worker morale.
D)A plumber can provide his services to only a limited number of customers.
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Chapter 20: Income Inequality and Poverty
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Q1) Which factor is NOT a reason that data on income distribution and the poverty rate give an incomplete picture of inequality
A)in-kind transfers
B)the economic life cycle
C)transitory income
D)economic immobility
Q2) Given that people can borrow when they are young,what would the life cycle theory suggest that one's standard of living depends on
A)lifetime income rather than annual income
B)aggregate income rather than annual personal income
C)annual extended family income rather than annual personal income
D)income averaged across seasons rather than across years
Q3) Based on data from 2011,approximately what percentage of all income in Canada did the top fifth of all families receive
A)32
B)43
C)52
D)78
Q4) What is the R-factor? How did the R-factor change from 1976 to 2011 in Canada?
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Chapter 21: The Theory of Consumer Choice
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Sample Questions
Q1) Which of the following is most likely an inferior good
A)an antique car
B)gasoline
C)a bus ticket
D)an airline ticket
Q2) Refer to Figure 21-8.Assume that the consumer depicted has an income of $120 and the price of a bag of marshmallows is $6.Which bundle of marshmallows and chocolate chips will the optimizing consumer choose to purchase
A)bundle A
B)bundle B
C)bundle C
D)bundle D
Q3) If two bundles of goods satisfy a consumer equally well,what can we say about the consumer
A)She is on her budget constraint.
B)She is in a position of equilibrium.
C)She is indifferent between the bundles.
D)She is optimally satisfied.
Q4) Use graphs to demonstrate how an individual labour supply curve is derived.
Q5) List and briefly explain each of the four properties of indifference curves.
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Chapter 22: Frontiers of Microeconomics
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Q1) Shawn buys automobile insurance from Safe-T Insurance Company.If Shawn avoids having an accident for three years,Safe-T will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.Which statement best characterizes this principal and agent problem
A)It would make sense for Safe-T to reduce Shawn's price of insurance now, rather than waiting to see if he has an accident in the next three years.
B)Shawn's behaviour is an example of adverse selection.
C)Safe-T Insurance Company is a principal; Shawn is an agent.
D)Shawn should avoid reporting any accidents to Safe-T.
Q2) An implication of the median voter theorem is that Conservatives and Liberals will try to align their views with those of the median voter.
A)True
B)False
Q3) the two major problems caused by asymmetric information are the moral hazard problem and the principal-agent problem.
A)True
B)False
Q4) Explain the Condorcet paradox.To which type of voting system does it apply?
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