Introduction to Microeconomics Study Guide Questions
Course
Introduction
Introduction to Microeconomics is a foundational course that explores the principles underlying individual and firm decision-making within various market structures. Students will examine topics such as supply and demand, consumer behavior, production and cost analysis, market equilibrium, and the impact of government policies on markets. The course also emphasizes the allocation of scarce resources and the role of incentives in shaping economic outcomes, providing a basis for understanding real-world economic issues and policy debates.
Recommended Textbook
Principles of Microeconomics 1st Edition by Dirk Mateer
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2
Chapter 1: The Five Foundations of Economics
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Sample Questions
Q1) If you don't like changing the oil in your car and pay your father to do it for you,you have provided him with a(n):
A) direct incentive.
B) indirect incentive.
C) neutral incentive.
D) complementary incentive.
E) unintended incentive.
Answer: A
Q2) Because of scarcity:
A) individuals and societies are allowed no choice about which wants and needs to satisfy.
B) individuals and societies must choose which wants and needs to satisfy.
C) all choices about wants and using resources must be made by the government.
D) choices can be made about which wants to satisfy, but not about which resources to use.
E) choices must be made about which resources to use, but not about which wants to satisfy.
Answer: B
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Page 3
Chapter 2: Model Building and Gains From Trade
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Sample Questions
Q1) What is Jim's opportunity cost of making 1 stromboli?
A) 1/2 pizza
B) 2/3 pizza
C) 2 pizzas
D) 2 stromboli
E) 25 pizzas
Answer: A
Q2) What is DiNozzo's opportunity cost for solving a crime?
A) 20 solved crimes
B) 30 solved crimes
C) 5 solved crimes
D) 1/20 of a boat
E) 1/10 of a boat
Answer: D
Q3) Draw a production possibilities frontier (PPF) that shows a pizza shop's production trade-offs between producing pizzas and stromboli.Suppose the pizza shop upgrades to a larger,more-automated oven.On the same graph,show how the PPF changes.(The oven is used to bake both pizzas and stromboli.)
Answer: 11ea592e_1c23_6299_af5c_394911296349_TB4869_00
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Page 4
Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) Which of the following situations would cause the demand curve to shift to the right?
A) a decrease in the number of consumers
B) a decrease in the number of producers
C) an increase in the price of a complement
D) an increase in the price of a substitute
E) a change in tastes and preferences
Answer: D
Q2) According to the supply and demand model,when the cotton gin was invented and if all else was held constant,we would expect the equilibrium price of cotton to _________ and the equilibrium quantity of cotton to _________.
A) increase; increase.
B) increase; decrease.
C) decrease; increase.
D) decrease; decrease.
E) remain the same; increase.
Answer: C
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Chapter 4: Price Controls
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Sample Questions
Q1) Let's say that you have a friend who was caught illegally selling a good on the black market.When the judge asks you to describe your friend's motivation as a seller,which of the following would most likely be your reply?
A) My friend sold the good on the black market because a binding price floor had created a shortage in the legal market and my friend was performing a public service by making the good available.
B) My friend sold the good on the black market because a nonbinding price ceiling caused the price to be lower on the black market.
C) My friend sold the good on the black market because a nonbinding price floor had created a shortage in the legal market and my friend was performing a public service by making the good available.
D) My friend sold the good on the black market because a nonbinding price floor made the good too expensive to purchase in the legal market and it was cheaper on the black market.
E) My friend sold the good on the black market because a binding price floor resulted in a surplus of the product in the legal market and he needed to get rid of the surplus.
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Chapter 5: The Efficiency of Markets and the Costs of Taxation
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Sample Questions
Q1) Consider the market for socks.The current price of a pair of plain white socks is $5.00.Two consumers,Jeff and Samir,are willing to pay $7.25 and $8.00,respectively,for a pair of plain white socks.Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair.What is the total producer surplus in this market?
A) $0.15
B) $8.15
C) $0.85
D) $1.00
E) $1.85
Q2) Compared to consumers,producers will lose the greater amount of surplus from a tax if:
A) supply and demand are equally elastic.
B) supply is less elastic than demand.
C) supply is more elastic than demand.
D) demand is perfectly inelastic.
E) supply is perfectly elastic.
Q3) Explain why the elasticities of supply and demand determine who bears more of the burden of a tax,consumers or producers.
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Chapter 6: Introduction to Macroeconomics and Gross
Domestic Product
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Sample Questions
Q1) If GDP is increasing,is the country necessarily producing a larger quantity of goods and services? Explain.
Q2) Goods that firms repackage with other goods for sale at a later stage are:
A) inventory.
B) final goods.
C) intermediate goods.
D) used goods.
E) value-added goods.
Q3) What is the value of nominal GDP in 2009?
A) $50,000 million
B) $500 million
C) $400 million
D) $600 million
E) $100 million
Q4) During which period was the economy in an expansion?
A) 2005-2009
B) 2000-2004
C) 2009-2013
D) 2004-2008
E) 2000-2012
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Chapter 7: Unemployment
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Sample Questions
Q1) Typically during a recession,the percentage of the total unemployed that are classified under short-term unemployment ____________ and the percentage classified as long-term unemployment ____________.
A) increases; increases B) increases; decreases C) decreases; decreases
D) decreases; increases
E) stays the same; increases
Q2) The government can assist in reducing the level of structural unemployment by:
A) providing unemployment benefits.
B) establishing government regulations on hiring employees.
C) subsidizing the relocation of workers who lose their jobs.
D) instituting a minimum-wage law.
E) incentivizing companies to move their production overseas.
Q3) How do the unemployment rates differ between adults and teenagers in the United States,holding all else constant? What are some reasons for this difference?
Q4) Provide evidence that the economic contraction from July 1981 to November 1982 was very similar to the Great Recession.
Q5) Explain the relationship between the unemployment rate and the business cycle.
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Chapter 8: The Price Level and Inflation
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Sample Questions
Q1) Let's say a company invents a very popular device called a Zorgon,which allows you to send small items via a transporter from one place to another.This would affect the consumer price index (CPI) in the sense that the CPI:
A) would fail to include purchases of the Zorgon for some period of time after the product entered the market.
B) would overstate the cost of the Zorgon because the price would fall over time but the CPI would always be "catching up" and be behind the price decreases.
C) would fail to take into account substitution between the Zorgon and the use of shipping services such as FedEx and UPS as the relative price of these changed.
D) would fail to take into account the quality of the Zorgon.
E) always accurately measures the cost of living.
Q2) Describe menu costs.
Q3) Describe the methodology of finding the consumer price index (CPI).
Q4) Explain the notion of money illusion in specific detail.
Q5) What is the underlying concept behind future price level uncertainty?
Q6) Arguably there are three reasons why the consumer price index (CPI) overstates inflation.List the reasons and explain each one.
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Page 10
Chapter 9: Savings, interest Rates, and the Market for Loanable Funds
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Sample Questions
Q1) Equilibrium in the loanable funds market means:
A) the interest rate at which savings equals consumption.
B) the interest rate at which investment equals consumption.
C) the interest rate at which investment equals savings.
D) the dollar price at which investment equals savings.
E) the dollar price at which savings equals consumption.
Q2) Arguably,interest represents:
A) both a cost to lenders and a reward to borrowers.
B) both a cost to borrowers and a return to savers.
C) the price of later availability (in terms of accrued interest) and a cost to borrowers.
D) the payment to the land factor of production and a return to savers.
E) the optimal rate of investment in depreciating assets and the price of earlier availability.
Q3) Is it easy to "catch up" if one does not start saving until later in life? Explain your answer.
Q4) Explain why the market for loanable funds is important.Be sure to address who are borrowers in this market and who are lenders.
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Chapter 10: Financial Markets and Securities
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Sample Questions
Q1) The face value of a bond is:
A) the value of the bond at maturity plus the price of the bond at purchase.
B) the value of the bond at maturity minus the price of the bond at purchase.
C) the price of the bond at purchase.
D) the value of the bond at maturity; the amount due at repayment.
E) the price of the bond at purchase minus the face value of the bond.
Q2) Direct finance occurs when:
A) savers go directly to borrowers for funds.
B) borrowers deposit funds into banks, which then loan these funds to savers.
C) savers deposit funds into banks, which then loan these funds to borrowers.
D) borrowers go directly to savers for funds.
E) banks get involved with financing.
Q3) The creation of a new security by combining otherwise separate loan agreements is called:
A) bundling.
B) securitization.
C) a Treasury security.
D) secondary markets.
E) secondarization.
Q4) Discuss the benefits of foreign savings on the U.S.economy.
Page 12
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Chapter 11: Economic Growth and the Wealth of Nations
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Sample Questions
Q1) Annual real per capita gross domestic product (GDP) in China was roughly $5,200 in 2000.If it grew by 10% the following year,by 2001 the annual real per capita GDP would be:
A) $520.
B) $5,720.
C) $5,252.
D) $10,520.
E) $6,125.
Q2) Resources are:
A) the output that firms produce.
B) inputs used to produce goods and services.
C) the technology that firms use to make things.
D) the institutions that encourage efficiency.
E) the cost of producing goods and services.
Q3) Which of the following would be classified as a natural resource?
A) obtaining a college degree
B) a factory
C) coal
D) a loaf of bread
E) wireless networking equipment
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Page 13
Chapter 12: Growth Theory
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Sample Questions
Q1) The total acres plowed when two tractors are used is:
A) 470.
B) 300.
C) 310.
D) 320.
E) 350.
Q2) If net investment is negative but technology has advanced,then:
A) the production function will shift upward and capital is unchanged.
B) the production function will shift downward and capital is unchanged.
C) there is an upward movement along the production function.
D) there is a downward movement along the production function.
E) there is an upward shift of the production function and a downward movement along the production function.
Q3) It is reasonable to expect that as the amount of physical capital is increased,the amount of output produced will:
A) increase at a constant rate.
B) increase at a diminishing rate.
C) increase at an increasing rate.
D) decrease.
E) be unaffected.
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Chapter 13: The Aggregate Demandaggregate Supply
Model
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Sample Questions
Q1) When firms invest less because people are saving less,it is called the:
A) wealth effect.
B) international trade effect.
C) interest rate effect.
D) savings effect.
E) investment effect.
Q2) Explain the difference between the short-run and long-run aggregate supply curves.
Q3) Suppose the majority of students who are graduating in May from a large university have found jobs and signed employment contracts by February.Starting in February,these students are likely to __________ spending and __________ saving.
A) increase; increase
B) decrease; decrease
C) decrease; increase
D) increase; decrease
E) not change their rate of; not change their rate of
Q4) Explain how a change in real wealth can sometimes cause a movement along the aggregate demand curve and how sometimes it can cause a shift of the aggregate demand curve.
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Chapter 14: The Great Recession, the Great Depression, and Great Macroeconomic Debates
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Sample Questions
Q1) Keynesian economists believe that savings is a drain on demand because:
A) when a recession occurs, households tend to spend less, which only worsens the recession.
B) prices are flexible and allow the economy to quickly return to full employment.
C) the economy is stable and tends toward full employment.
D) government intervention in the economy is unnecessary.
E) the short run is more important than the long run, and economic policy only works in the short run.
Q2) One similarity between the Great Recession and the Great Depression is that,in both episodes:
A) large numbers of banks failed.
B) there were significant problems in financial markets.
C) the U.S.government raised taxes.
D) the U.S.government allowed the money supply to decrease.
E) the unemployment rate exceeded 20%.
Q3) The Great Recession began when housing prices began to decline,followed by a decline in stock prices.A significant financial crisis then occurred in 2008.Using the aggregate demand and aggregate supply model,explain what effect these events had on the economy.
Page 16
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Chapter 15: Federal Budgets: the Tools of Fiscal Policy
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Sample Questions
Q1) Over the next 20 years,the number of workers per Social Security beneficiary is predicted to be:
A) more than 5.
B) less than 5 but more than 3.
C) less than 3 but more than 2.
D) less than 2 but more than 1.
E) less than 1.
Q2) Using the table,what is the total federal income tax bill for someone who makes $67,000 per year?
A) $16,750
B) $12,780
C) $11,169
D) $10,050
E) $6,700
Q3) Budget deficits tend to:
A) increase over time.
B) decrease over time.
C) increase during recessions.
D) increase during expansions.
E) grow as the economy grows and shrink as the economy shrinks.
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) Supply-side fiscal policy will lead to:
A) an outward rotation of the long-run aggregate supply curve.
B) a rightward shift of the aggregate demand curve.
C) a rightward shift of the long-run aggregate supply curve.
D) an inward rotation of the long-run aggregate supply curve.
E) a leftward shift of the long-run aggregate supply curve.
Q2) At ___________ tax rates,___________ in those tax rates lead to ___________ in total tax revenue.
A) low; increases; increases
B) low; increases; decreases
C) low; decreases; increases
D) high; increases; increases
E) high; decreases; decreases
Q3) Draw two different business cycles on the same graph.Show one without countercyclical fiscal policy and one with countercyclical fiscal policy.Referring to your diagram,discuss why governments employ countercyclical fiscal policy.
Q4) You have just been chosen as an advisor to the president.After years of constant growth,the U.S.economy is beginning to fall into a recession.What type of fiscal policy will you suggest to the president,and why?
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Chapter 17: Money and the Federal Reserve
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Sample Questions
Q1) One of the roles of the Federal Reserve is to regulate banks.What specifically does the Federal Reserve monitor within individual banks? Provide two reasons why it is important to regulate banks even though they are private businesses.
Q2) Which of the following events could cause inflation in the United States-a country that uses fiat money?
A) There is a discovery of a new silver mine.
B) There has been a decision made to switch from a currency based on the amount of gold (a scarce metal) to a currency based on the amount of silver (a plentiful metal).
C) Individuals are frustrated by the infrequent occurrence of the double coincidence of wants.
D) The government decides to print more money.
E) The government decides to transition to a commodity-backed money.
Q3) Loans and deposits within a bank are:
A) liabilities and assets, respectively, on a bank's balance sheet.
B) assets and liabilities, respectively, on a bank's balance sheet.
C) are not found on a bank's balance sheet.
D) both assets.
E) both liabilities.
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Chapter 18: Monetary Policy
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Sample Questions
Q1) Before the development of expectations theory:
A) monetary policy prescriptions were strictly passive.
B) monetary policy had no real effects in the short run.
C) monetary policy prescriptions were strictly activist.
D) monetary policy only had real effects in the long run.
E) economists did not understand the idea of sticky prices.
Q2) Because you are an economics student,your parents are always asking you about the macroeconomy.Over the past few months,they have seen the economy expanding at a very fast pace and your parents are worried about inflation.Your parents ask you,"What type of monetary policy do you expect the Federal Reserve to conduct if it expected high levels of inflation on the horizon?" Explain your answer.
Q3) What will economists today likely state should have been done to limit the severity of the Great Depression?
A) The Fed should have done more to decrease the money supply at the onset.
B) The Fed should have done more to decrease the inflation at the onset.
C) The Fed should have reacted more quickly to decrease the money supply.
D) The Fed should have waited longer before trying to raise the money supply.
E) The Fed should have done more to offset the decline in the money supply at the onset.
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Chapter 19: International Trade
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Sample Questions
Q1) What is the maximum number of each item that can be produced if each worker fully specializes and produces according to his comparative advantage?
A) 4 computers and 12 smartphones
B) 5 computers and 14 smartphones
C) 6 computers and 16 smartphones
D) 8 computers and 22 smartphones
E) 10 computers and 28 smartphones
Q2) Amy has a comparative advantage in the production of ___________,and Jim has a comparative advantage in the production of _____________.
A) houses; houses
B) houses; cheese
C) cheese; houses
D) both goods; houses
E) both goods; cheese
Q3) What are the rationales for trade-restrictive policies?
Q4) What exactly is the advantage of the principle of comparative advantage?
Q5) What are some of the gains from trade?
Q6) Describe what the market effects on a good would be in the face of a quota,a tariff,and a complete ban on imports.
Page 21
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Chapter 20: International Finance
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Sample Questions
Q1) Between October 1,2012,and November 1,2012,the U.S.dollar __________ against the British pound,and the British pound ___________ against the U.S.dollar.
A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) neither appreciated nor depreciated; neither appreciated nor depreciated
Q2) What is the key identity of the balance of payments?
A) current account balance - capital account balance = 0
B) current account balance + capital account balance = 0
C) capital account balance - current account balance = 0
D) current account balance 7 capital account balance
E) current account balance 6 capital account balance
Q3) Which of the following would be entered into the U.S.current account?
A) a share of Apple stock purchased by a U.S.citizen
B) an abandoned Italian factory purchased by an American company
C) a share of Coca-Cola stock bought by a foreign citizen
D) a bottle of wine from Portugal purchased by a U.S.citizen
E) a Japanese government bond purchased by the U.S.government
Q4) Why might a large capital account surplus be considered bad for an economy?
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